SINGAPORE (Feb 28): Indonesia is Southeast Asia’s largest country with a population of more than 270 million.
Such a big land mass comes with a set of problems: Non-profit organisation Water.org estimates that last year, 28 million Indonesians lacked safe water while another 71 million did not have access to proper sanitation facilities.
Suffice to say, Indonesia has a clean water problem.
Main image: With the proceeds from this IPO, Tay intends to expand in Indonesia to meet the high demand for clean water
The ratio of water storage per capital is considered low at about 52.55 m³ per capita, while groundwater is over exploited in urbanised areas, and water quality of rivers and lakes is poor, according to the Asian Development Bank. Over exploitation of water occurs when a water resource is mined or extracted at a rate that exceeds the recharge rate.
To address this, the Indonesian government has introduced the Public-Private Partnership (PPP) Framework to nudge private sector investment towards water supply projects.
Under such a framework, the so-called build-own-operate-transfer (BOOT) model is a commonly-used for these projects.
This is where Memiontec comes in: The Singapore-based company — formed in 1992 and incorporated in 2013 — provides water treatment and wastewater management services across Indonesia, Singapore and China.
Memiontec has partnered with PT Jakarta Utilitas Propertindo (JUP), a wholly-owned subsidiary of PT Jakarta Propertindo. The latter in turn is an enterprise owned by the Jakarta state government. The partners have also formed a joint venture company (JVCo) — PT Jakpro Memiontec Air — which is undertaking one such BOOT project in Hutan Kota, an area in North Jakarta. The city government, via JUP, owns 60% with Memiontec holding the remaining 40%.
Under this project, a BOOT facility was completed last August, where Memiontec has a total concessionary period of 25 years. The facility now sells clean and safe water to some 500,000 people in the vicinity.
Furthermore, the JVCo has also completed a transfer-own-operate-transfer (TOOT) project in Waduk Pluit, also in north Jakarta. This facility started providing clean water since November 2018 and can provide up to 2,500m³ of clean water per day.
The two projects are just part of the Memiontec’s latest business diversification. Its main business segments are the provision of total solutions with engineering, procurement and construction (TSEPC) services, the operation, maintenance and service of water and wastewater treatment plants (OMS), the sales and distribution of modular and customised systems and equipment and the sales of water.
Tay Kiat Seng, Memiontec’s executive chairman and chief executive, says there is a very obvious reason why he wants to be so active in Indonesia despite being hands-full with his earlier Singapore projects.
“With a large population, there are so many opportunities. And even if we just concentrate on Indonesia alone, we won’t be able to ‘eat finish’,” he tells The Edge Singapore, referring to a market demand with a bigger than he can fulfil.
He also observes that he has been operating in Indonesia for the past two decades, and gone through two major financial crises. “But we still managed to profit all these while. And after all these years, we have become familiar there and have built a large network. So, this is the time for us to grow in Indonesia. I see the potential.”
Home waters
Indonesia may be Memiontec’s main market — with revenue from the country representing 58% of the group’s total revenue in FY2018 ended Dec 31 2018 — but the group also has a significant presence in Singapore (39% of total FY2018 revenue). In its latest 1HFY2019 period ended June 30 2019, the group recorded earnings of $355,000, 61.6% lower than $924,000 in 1HFY2018. This is mainly due to the group’s one-off listing expenses.
However, on a full-year basis, FY2018 saw earnings of $4.6 million, more than six fold increase from $700,000 recorded in FY2017, as revenue increased by 17.8% y-o-y to $24.5 million. This revenue increase was mainly due to higher contribution from the group’s Indonesian market.
To be sure, while the company is finding new projects in overseas markets like Indonesia, it has been equally, if not more so, in Singapore. One of the group’s latest project in Singapore is awarded by the Public Utilities Board (PUB). Worth about $33.2 million, the group is tasked to replace the ultrafiltration membrane and interconnecting valves at Tuaspring Desalination Plant. Tuaspring was previously owned by embattled water treatment firm Hyflux but was later taken over by PUB.
Additionally, Memiontec has also clinched an approximately $8 million project to provide a water treatment system for the penguins in Mandai Bird Park.
As at Feb 21, its total order book stands at $73.05 million. Tay also says that there are more projects in the pipeline but details have yet to be firmed up.
To fund these projects and deals and to gear up for new ones, on Feb 21 Memionec launched its initial public offering (IPO), to raise gross proceeds of some $5.8 million by issuing about 33.5 million shares at 22.5 cents per share.
It will be listing on the Catalist Board of the Singapore Exchange (SGX). ZICO Capital is the sponsor and issue manager for this IPO, while UOB Kay Hian is the placement agent.
Although the group’s key market is in Indonesia, Tay was adamant that the listing should be done in Singapore.
“We are a home-grown company that has been around for about 28 years. The local government has also shown their support for us and our business,” he explains.
The placement represents approximately 15.2% of the enlarged share capital of about 220.3 million shares of Memiontec. Based on the placement price, Memiontec’s market capitalisation will be approximately $49.6 million post-placement.
This placement will close at 12pm on Mar 3, 2020 and the listing and trading of Memiontec’s shares is expected to commence at 9am on Mar 5, 2020.
Out of the net proceeds of some $5.8 million, the company plans to allocate approximately $2.1 million to invest in BOOT projects and mergers and acquisitions.
It will also set aside some proceeds to go towards expanding its sales and distribution of its systems and equipment business, as well as for general working capital purposes.
Currently, Tay and his wife Soelistyo Dewi Soegiharto — who is also the group’s managing director — are the controlling shareholders.
Following the IPO, they will hold a collective 81.5% shares in Memiontec.
To help sweeten the IPO, the company also plans to pay out a minimum of 20% and 25% of its profit for FY2019 and FY2020 respectively as dividends to shareholders.
Moving upstream
Tay recognises that the water treatment business is a competitive one. “Singapore is especially competitive. Salaries are high here and the population is only about six million. Working here, we would always have to depend on government projects. That’s why you commonly see Singaporean water treatment companies expand to other countries such as Indonesia and China,” he says.
But that is not stopping him from chasing after his passion.
After graduating from the UK, he went to Sydney to work for a water treatment company. Three years after that, Tay decided to take things into his own hands went back to Singapore to open up his own company.
Moving forward, Memiontec intends to expand its businesses in its existing markets, namely: Singapore, Indonesia, and China, by offering a suite of services, solutions and products including TSEPC, OMS, sales and distribution of systems and equipment and sales of water through participating in TOOT or BOOT projects. The group has also begun offering, and will continue to offer, consultancy and front-end engineering design services.
In the mid-term, the group also has plans to venture into overseas markets in Southeast Asia through business collaborations, strategic alliances, joint ventures, acquisitions or investments. It is also open to exploring business opportunities in other parts of the world as and when they arise.
