JT 8.2016This article by Jennifer Tan (left, Director, Research & Products,  Equities & Fixed Income, at the Singapore Exchange) was published in SGX's kopi-C: the Company brew series on 3 November 2017. The article is republished with permission.

AcuaticoIn June 2017, Moya acquired Singapore-based Acuatico, which also develops and operates water treatment and distribution facilities in Indonesia and provides water servicesto eastern Jakarta and parts of Tangerang.
(Photo: Company)

A veritable human dynamo, Lebanese-born Simon Melhem is not one to let grass grow under his feet.

The Executive Director of SGX-listed water solutions provider Moya Holdings Asia Ltd enjoys meeting people, generating ideas and making things happen.

"Getting to know someone, going somewhere new, doing something different - those are activities that energise me. My passion is business development, and I take a lot of pleasure in turning a 'No' into a 'Yes'," Melhem said.

"I'm a well-oiled machine that runs like clockwork - almost no fuel required," quipped the 53-year-old with a twinkle in his eye.

All his boundless energy - coupled with three decades of experience in power generation and energy infrastructure - are channelled towards shaping Moya into Asia's leading water player.

LQM 8d7557I convinced them to look beyond the Middle East - at Southeast Asia in particular - because the water business is directly related to population growth...

- Simon Melhem
Executive Director

Moya Holdings Asia

The company's inception dates back to 2009, when Melhem teamed up with Bahraini and Saudi investors to set up a water development and investment vehicle for the Middle Eastern market.

"I convinced them to look beyond the Middle East - at Southeast Asia in particular - because the water business is directly related to population growth, and I had previously spent a lot of time in Indonesia and the region," he recalled.

Moya Dayen was formed that year through a reverse takeover, after Bahrain-based Moya Holding acquired 51% of Catalist-listed engineering, procurement and construction (EPC) firm Dayen Environmental.

The company changed its name to Moya Asia in 2011, and again then to Moya Holdings Asia in 2013. Its business model was also revamped to focus on investments in Indonesia.

"We decided the Indonesian market would offer the best returns relative to effort and capital investment," added Melhem.

Moya, which means water in Arabic, has since embarked on an aggressive expansion program, signing three build-operate-transfer (BOT) water supply projects between 2011 and 2013.

The first two - in Bekasi Regency and Tangerang City - have started commercial operations in phases, with a 25-year BOT contract each and a current capacity of 1,300 and 1,150 litres per second (lps) respectively.

The third project, in Makassar City, is expected to begin construction work next year, pending amendment discussions with local authorities. This contract also has a 25-year lifespan, and is projected to have a capacity of 700 lps when fully operational.


Pole Position

In February 2015, Moya sold a 29% stake via placement of new shares to Indonesia-based hydroelectric power plant operator Tamaris Infrastructure, controlled by Indonesian billionaire Anthony Salim. A year later, Tamaris raised its shareholding in Moya to 62% after subscribing for the company's rights shares.

"We needed to expand our balance sheet, and it was good to have a local Indonesian partner, so after discussions with water companies and private equity firms, we went with Tamaris, because there were many similarities between our business models," Melhem said.

Moya did not stop there. In June this year, the company completed a US$92.9 million acquisition of Singapore-based Acuatico, which also develops and operates water treatment and distribution facilities in Indonesia. The company provides water services through its Aetra brand to eastern Jakarta and parts of Tangerang.

This acquisition boosts Moya's total water treatment capacity to 13,935 lps, catapulting it to number one position in Indonesia's water market.

Melhem
LQM 8d7557

We decided the Indonesian market would offer the best returns relative to effort and capital investment.


- Simon Melhem
Executive Director

Moya Holdings Asia

(Photo: Company)

Given the country's size - it is Southeast Asia's largest economy and the world's fourth-most populous nation - growth prospects of its water sector are naturally robust.

The sprawling archipelago has a population of more than 260 million, but only close to 70% have access to safe drinking water, according to data from the country's Central Statistics Agency.

The government has pledged to achieve a coverage target of 100% access to safe drinking water by 2019 under the National Medium Term Development Plan (RPJMN 2015-2019).

"The level of development in the water sector and access to water services are still below what it should be for countries of similar GDP and population size," Melhem noted.

"And we're well-positioned to capitalise on this."

Moya has a current market capitalisation of over S$290 million. Its shares have generated a price gain of 96.2% in the 2017 year-to-date, compared with gains of 17.7% and 17.4% respectively for the benchmark Straits Times Index and FTSE ST All-Share Index.

Its Singapore-listed peers are Citic Envirotech Ltd, SIIC Environment Holdings Ltd, Sanli Environment Ltd, China Everbright Water Ltd, Hyflux Ltd, and Darco Water Technologies Ltd.

Key competitors in Indonesia include PT PAM Lyonnaise Jaya, a unit of French waste and water treatment group Suez Environnement, with a total capacity of 10,100 lps, as well as PT Adhya Tirta with a capacity of 7,230 lps, and PT Traya with a total capacity of 4,400 lps.

Right now, the stars are aligned, and Moya is firing on all cylinders.

"We've got all the basics covered - economies of scale, a good track record, access to debt and equity. We can go full speed ahead in terms of growing the company," Melhem said.

 

♦ Making Inroads

With this goal in mind, Moya has adopted a proactive approach in developing new business leads.

"There are two kinds of water projects in Indonesia - first, those solicited by central or local governments, who issue international tenders in the local media that attract multiple bids, and second, those that are worked out hand-in-hand with local governments, based on feasibility studies and their specific needs," Melhem said.

The second approach requires a massive investment of time.

"We have made it a point to avoid the first type of tenders. Instead, we are focused on active business development, venturing into cities we feel are attractive investments based on their location, size and tariff regimes, talking to local governments about the type of projects they require, and negotiating those projects based on business-to-business regulations."

Moya's management also realised at an early stage that apart from water treatment capacity, developing a reliable pipeline network to deliver treated water to customers was essential.

"Several projects stalled because private sector investors focused only on water treatment, and relied on local governments to connect customers to the treated water," Melhem explained.

"Many companies shy away from network development because it basically involves digging up streets and laying pipes. What they don't realise is that Indonesia also needs help to develop its piped network, and a successful project means you need to be able to control the entire process from end-to-end."

Stock price  10.3c
52-week Range 5c - 13.1c
Market Cap S$288.5m
Price/Book 2.4
Price Earnings 50.5
Dividend Yield -
Source: SGX StockFacts

Such strategies have set Moya apart from the competition, and enabled the company to make inroads into the domestic water market, he added.

So far, the outlook is bright. While organic growth from its various projects remains strong,

Moya is also looking to acquire other small water players. At the same time, it is in active talks with a number of local governments to improve water service levels in their territories.

"We're pursuing all three approaches vigorously, but you can only go as fast as your counterparty will go. You can't build the factory by yourself."

Meanwhile, there's no shortage of funds or technologies for water projects in the country, Melhem said.

"No good project will go unfunded - if there are good internal rates of return, a strong foundation and structure, there's plenty of money out there, especially in the current low interest-rate environment."

Instead, the challenge lies in conceiving and structuring a contract that works for the local government, banks, and operators.

"The commercial negotiations are the essence of the deal. Once you sign the BOT contract, you have to live with that document for the next 25 years," he added.

Another key challenge has, and will continue to be, Indonesia's regulatory environment. "Water is a very sensitive and basic need that gets a lot of attention from the government and its bureaucracies," Melhem noted.

"The issues are navigating through various regulations - both old and new - as well as the different regulatory regimes."

 

Emotional Highs

The good news for BlackGold is that it still has a long way to go, he added.

With water being such an emotional story, Melhem sometimes lies awake at night wondering what he will read in local newspapers the next morning.

"The water sector gets lots more attention than toll roads or power plants. Rain does not equate water from your tap. You need capex to deliver treated water to homes, and while water should be affordable, it cannot be free," he noted.

And in many instances, the government cannot provide water to citizens without the private sector's participation, he added.

"The resentment arises because people think private sector involvement raises the cost of water. That is not true - the role of the private sector is to boost the efficiency of delivery, allowing the government to deliver water more cheaply. And in some cases, without the private sector, the city may not be able to provide treated water to begin with."

That's the case in Jakarta, where Acuatico's Aetra Air Jakarta cooperation agreement is due for renewal in January 2023. Melhem sees no reason why this contract would not be extended.

The Indonesian capital, like many other cities in Southeast Asia, remains under-served, with high non-revenue water (NRW) from theft or leakage, and low connections. Alternative means to boost water service levels - such as tapping ground water or providing non-piped transportation - are expensive and non-sustainable.


LQM 8d7557The role of the private sector is to boost the efficiency of delivery, allowing the government to deliver water more cheaply. And in some cases, without the private sector, the city may not be able to provide treated water to begin with.

- Simon Melhem
Executive Director

Moya Holdings Asia

"We can see that the city is focused on increasing water connections, and that requires capital investment and technology know-how," he noted.

"The Indonesian President has, on many occasions, pushed for private-public partnerships because national and local budgets are insufficient to achieve these goals.

There's definitely a role for the private sector to play, and the needs are today, not seven years from now."

And through it all, Melhem's emphasis on the business is unwavering. "Work is my focus - that keeps me going," he admitted with a grin.

"One of the most satisfying moments for me is the signing of the cooperation agreement, because so much energy and effort goes into putting all the concepts down on paper, and finally you see it in print," he added.

"While there are other milestones that come after that, such as during the implementation process, the contract is the highest point - that's the instrument that will survive for the next 20 to 25 years."

And the key to achieving that success is persistence, said Melhem, who has two daughters aged five and 13, and a son, 11.

"I always tell my kids, if you have persistence, you will eventually succeed. So never, ever give up - your worst enemy is giving up!"


Financial results

Year ended 31 December (S$ '000) 2016 2015 2014 2013
Revenue 19,326  9,820 9,136 21,042
Gross profit 2,325 1,326  2,107 2,657
Net profit / loss attributable to owners 6,706 -357  -834 -10,058



Quarter ended 30 June (S$ '000) 2QFY2017 2QFY2016
yoy chg
Revenue 18,642 3,986 368%
Gross profit 6,329 846 633%
Net profit / loss attributable to owners 1,160 1,393 -17%

Source: Company data

 


Outlook & Risks
  • The Group will continue its efforts in its long-term strategy to achieve strong organic growth and acquisition-driven expansion to attain sustainable growth and maximise value for shareholders.
  • In line with this, the Group announced in June 2017 the completion of the acquisition of Acuatico Pte Ltd. With this acquisition, the Group will expand its business reach significantly and boost production capacity by more than four-fold, allowing it to emerge as one of the leading private players in Indonesia's water treatment industry, with a total water treatment capacity of 13,935 litres per second.
  • According to the National Mid-Term Development Plan 2015-2019, the Indonesian government aims for all Indonesians to have access to clean water by 2019. In order to achieve this goal, the Indonesian government will require more than Rp 660 trillion of investments within the next five years.
  • As such, the Group remains cautiously optimistic on the demand for its product and services in the Indonesian market, and believes the Indonesian water industry will continue to receive significant investments in the coming years.
  • With the acquisition of Acuatico, the increase in production of its existing water treatment plants, and overall growth of the Indonesian water industry, barring any unforeseen circumstances, the Group remains cautiously optimistic about its performance for the financial year ending 31 December 2017.



Moya Holdings Asia Limited

Moya is engaged in the investment and development of total water solutions in Indonesia. These solutions include the collection of raw water, treatment of captured water and distribution of clean water.

The Group has three build, operate and transfer (BOT) projects under contract and development by its subsidiaries - PT Moya Bekasi Jaya, PT Moya Tangerang, and PT Moya Makassar. In June 2017, the Group completed the acquisition of Acuatico Pte Ltd.

Acuatico is an investment holding company incorporated in Singapore that develops and operates water treatment facilities and associated distribution pipelines for the distribution of clean water in Indonesia, through three subsidiaries - PT Aetra Air Jakarta, PT Aetra Air Tangerang and PT Acuatico Air Indonesia (the Acuatico Group).

Together with the Acuatico Group's water treatment plants, Moya serves the following regions in Indonesia - Bekasi (East of Jakarta), Tangerang (West of Jakarta), Eastern Jakarta, Northern Jakarta and Central Jakarta. The Group is one of the leading private players in Indonesia's water treatment sector with a total capacity of 13,935 litres per second.

 

For its 2nd quarter results for the period ended 30 June 2017, click here.

The company website is: www.moya.com.

The ccompany's Stock Facts page is here.


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