Making room for renewable energy

Clean room builder Acromec sees such projects as commercially viable, and plans to replicate its model across Asia.

ACROMEC, which designs and maintains laboratories and sterile facilities, had an interesting proposition when it sought an initial public offer (IPO) in Singapore in 2016.

Boasting a stellar client list which included Singapore General Hospital, A*Star, and Proctor & Gamble, the homegrown builder of clean rooms sought funds to make further inroads into the rapidly growing healthcare, biomedical, electronics, and research and academia sectors.

But a series of unfortunate events put a brake to its growth. Acromec, which enjoyed a compound annual growth rate of 14.5 per cent in its net profits in the years leading to its IPO, plunged into the red after its debut on the Singapore Exchange. Losses for 2016 were attributed to IPO expenses. In the fiscal year ended Sept 30, 2017, it suffered a double whammy of execution challenges in major projects and "bad luck" in its brownfield projects. It also wanted to penetrate the growing pharmaceutical segment to establish a track record to secure projects from well-known pharmaceutical MNCs. But instead, it faced stiff competitive pricing and cost overruns as a new player. As a result, despite stable revenue of S$43.5 million, it sank deeper into the red, with a net loss of S$4.6 million, compared to a net loss of S$577,000 in FY2016. It ended FY2017 with cash and cash equivalents of S$10.2 million.

However, Acromec, led by executive chairman and managing director Lim Say Chin, is ready to put the past behind. It has paid the price and learnt its lessons.

"We are mindful of our costs. We are constantly aware and rationalising our costs. We make sure our money is well spent. In short, we are confident that most of these factors are behind us," Mr Lim tells The Business Times in a recent interview.

Earlier this year, Acromec issued 16 million new shares at S$0.24 each to raise S$3.7 million in net proceeds for working capital and to fund expansion plans. Acromec shares are hovering close to its IPO price of S$0.22 apiece, but down from the year high at S$0.53 a piece.

It is now betting on renewable energy as a third core operation to propel growth, and boost its bottom line.

"One of our strategies is diversification from the lumpy nature of our engineering, procurement and construction (EPC) business. We are looking for businesses with good growth potential and which also provide recurring income streams. Renewable energy has been a buzzword and people are jumping on the bandwagon, as they see growth potential, especially with the global drive towards saving our environment," Mr Lim shares.

The opportunity came knocking when Acromec was introduced by its business contacts to Green Energy Resource (GER), which has the know-how and experience on waste-to-energy projects.

"They recognise that we have our strengths which they can tap as a controlled environment EPC specialist," Mr Lim says.

"We believe we will have great synergy together. They have technology know-how. We have the construction know-how. As an established listed company, we can grow this business together. We can build renewable energy plants together, own and operate together and make recurring profits together."

For a start, Acromec plans to build, own and operate an organic waste-to-energy plant on the future poultry farm site of Chew's Agriculture at Neo Tiew Road, off Lim Chu Kang in Singapore. The plan is for Chew's Agriculture to dispose of its waste at much lower cost and deliver about 70 tonnes of chicken manure daily which will be treated and converted into biogas which, in turn, will be used to generate electricity. The company will benefit from the sale of electricity back to the farm at a rate lower than what Singapore Power currently charges. The model will be replicated across Asia, starting with Indonesia.

"Our potential renewable energy project at Chew's farm is a commercially viable project. We just need to further conduct our due diligence. Once this project is successful, it just needs to be replicated across the island," says Mr Lim.

He stresses that the company is still focusing on its core EPC business, which is witnessing high tender activities in the sectors it is involved in.

In its core controlled environment business, Acromec is eyeing larger projects.

"We have a few potential projects to tender, and some are quite sizeable. We are looking at scalability."

The aim is still to expand overseas, as mentioned in its IPO prospectus.

"The Asean countries such as Indonesia and Vietnam have large populations and their rapid economic growth and urbanisation will have a consequential demand for healthcare, consumer goods, pharmaceuticals, electronics production - all of which are relevant to Acromec's business of controlled environments."

To-date, Acromec has incorporated Acromec Trading Indonesia and found good partners to jointly offer engineering products and solutions in the archipelago, with a view to an EPC project in the near future.

Its maintenance business has been stable and profitable, Mr Lim discloses.

"We are targeting to grow to at least double in two to three years' time. We will tap our synergy with our 60 per cent-owned subsidiary, Golden Harvest Engineering Pte Ltd, a maintenance company which we purchased in 2016."

With this strategic game plan, Mr Lim is confident that Acromec will achieve a faster and yet more stable growth rate. Ultimately, it will be able to fulfil its IPO promise to pay dividends of at least 20 per cent net profit.

"Despite temporary setbacks we faced, the fundamentals of our business are still intact . . . We uphold our promise to pay dividends of at least 20 per cent of our profits when we are profitable as a reward to our loyal stakeholders for their trust and confidence in Acromec."

Acromec is still on a look-out for companies that have a good track record and whose business is related and complementary to its business.

"But acquisition will only be done after thorough due diligence and only if the target can be acquired at a good valuation," Mr Lim says.