HOME-GROWN construction group Tiong Seng Holdings has signed a joint venture (JV) agreement with two listed Japanese companies to manufacture and supply precast tunnel segments for the Singapore and Malaysia markets.
Its chief executive officer, Pek Lian Guan, said that this will enable the company to target the growing pipeline of mass rapid transit projects and infrastructure construction in Singapore, in tandem with the Transport Ministry's plans to expand the rail network here.
The deal was signed behind closed doors at Pan Pacific Hotel between Tiong Seng's unit, Robin Village International; Geostr Corp, a consolidated unit of Nippon Steel & Sumitomo Metal Corp; as well as Marubeni-Itochu Steel Pte Ltd, a Singapore subsidiary of its steel trading parent company of the same name.
The JV company will be owned by Tiong Seng, Geostr and Marubeni-Itochu in a 44:51:5 proportion.
It plans to invest about $14.5 million to set up a manufacturing facility on Tiong Seng's existing precast plant in Iskandar, Malaysia. The JV's plant will occupy about a third of this facility, which sits on a 5.57-hectare plot, Mr Pek said.
Geostr will provide the expertise in making tunnel segments, which requires more stringent precision and quality than the precast segments Tiong Seng is used to making for the construction of buildings. The JV will also leverage on Marubeni's distribution network, he added.
Production is targeted to start in the first half of next year, so "the contribution (to our bottom line) will not be so immediate", Mr Pek said.
The JV will sell the precast segments it makes to the contractors involved in MRT construction projects. Tiong Seng itself will likely also purchase precast segments from the JV for the $316 million contract it recently clinched to build the Great World Station and tunnels along the Thomson Line.
Currently, most of the tunnel segments supply for MRT projects are sourced from companies with production factories in Johor, such as SPC Industries (a unit of Malaysian conglomerate Kimlun Group), Contech Precast (a unit of Singapore-listed Koon Holdings) and Hume Group (a unit of Hong Leong Group).
"This precast product has always been in the market, so it is not something new, but we are seeing the market demand increasing because of the MRT expansion projects," Mr Pek told BT.
Another reason that prompted its decision to get into tunnel segment production was its struggling property development division, he admitted.
In its latest concluded fiscal quarter, losses from this division deepened to $2.7 million, due to the difficult real estate environment in Singapore and China, where it is developing properties in some second and third-tier cities.
Its share price has fallen 25 per cent since the start of this year and is now trading at a 31 per cent discount to its net asset value per share as at end-March.
But it may now stand to benefit from the government's urging of developers to adopt pre-fabrication methods - assembling parts of the building in other facilities before installing them at the site - to improve the construction sector's dismal productivity.
Tiong Seng's counter ended 0.6 cent, or 3.2 per cent, higher at 19.6 cents yesterday. On the Tokyo stock exchange, Geostr rose 4 per cent to 801 yen while Marubeni added 0.4 per cent to 717 yen.