This article first appeared in The Edge Malaysia Weekly on June 3, 2024 - June 9, 2024

NEWS of the Malaysian Anti-Corruption Commission’s (MACC) probe into an unlawful subdivision of Malay reserve land in Sitiawan, Manjung, Perak, related to a senior personnel at Lagenda Properties Bhd (KL:LAGENDA) has cast a shadow on the company and its indirect affiliate, construction outfit Epicon Bhd (KL:EPICON).

In an effort to prevent the collateral damage from spilling over to their businesses, both companies are seen to be disassociating themselves from the probe that involves 650ha of Malay reserve land in the northern state.

Not much has been disclosed except that the senior personnel at the property development group was remanded by the MACC, as reported last Tuesday, and released on Thursday evening on RM50,000 bail, with two sureties and on condition to report to the MACC office every month.

However, the situation had a stunning impact on the two counters over the next few days.

“Even with the senior personnel’s release, the case casts an overhang on Lagenda until a decision has been made. Since ESG (environmental, social and governance) is so critical to institutional fund managers, share transactions will be limited to retailers and speculators as no fund would dare to take a position in the company,” says an analyst.

Lagenda shares hit limit down from RM1.45 in its first hour of trading last Wednesday after news of the remand broke, prompting Bursa Malaysia to suspend intraday short-selling (IDSS) of the shares and issue the company an unusual market activity (UMA) query. The next morning, the counter plunged another 27%, or 31.5 sen, to nearly a four-year low of 85.5 sen. However, despite the suspension of IDSS by Bursa on Thursday morning, the property developer’s share price surged 42.7% over the two days to close at RM1.22 last Friday.

Similarly, Epicon’s share price plummeted 38.75% to 24.5 sen last Wednesday upon news of the remand but reversed its losses to close at 35 sen on Friday. The company was also issued a UMA query but it said it was not linked to the investigation.

Lagenda and Epicon are connected via the Doh family. Lagenda managing director Datuk Doh Jee Ming and his brother Epicon director Datuk Doh Tee Leong have direct and indirect stakes of close to 57% of Lagenda via private vehicle Lagenda Land Sdn Bhd.

Epicon’s largest shareholder is Doh Properties Sdn Bhd since the latter’s acquisition of a 14.26% stake in the formerly ailing bus company Konsortium Transnasional Bhd in December 2021. Jee Ming and Tee Leong both have a 45% stake each in Doh Properties while a third brother, Datuk Doh Neng Chiong, and Datin Lee Hong King each have a 5% stake in the private vehicle.

Tee Leong also holds a direct stake of 2.17% in Epicon, while the other major shareholder is Lengkap Suci Sdn Bhd with 8% equity interest. The latter is controlled by Nadi Corp Holdings Sdn Bhd founder Tan Sri Mohd Nadzmi Mohd Salleh.

Before transforming into a real estate developer, Lagenda Properties was formerly known as DBE Gurney Resources Bhd, a poultry company owned by the Ding family. Doh Properties Sdn Bhd emerged as a major shareholder of DBE Gurney with an 8.76% stake following the conversion of redeemable convertible notes in December 2017 and later sold the poultry business back to the Ding family for about RM9.8 million.

The Doh brothers are the sons of Datuk Doh Neng Chiong, a prominent businessman from Sitiawan.

“Given the collateral damage, business for Lagenda may not be as usual but [executive director] Andy Chua Seng Hooi should be holding the fort for now,” says a person with knowledge of the matter.

The identity of the personnel in the MACC probe has not been revealed thus far. Nevertheless, Lagenda informed analysts in a briefing that Chua will temporarily assume leadership responsibilities.

According to sources, the 650ha of land being investigated is believed to be the Lagenda senior personnel’s private venture, echoing the property developer’s stance that the company is not linked to the probe.

According to Lagenda’s 2023 annual report, its unit Taraf Nusantara Sdn Bhd on Aug 9, 2022, bought 422 acres of development/agricultural land in Mukim Durian Sebatang, Perak, from Ladang Awana Sdn Bhd for RM92.40 million.

When The Edge asked Lagenda if the 422 acres purchased from Ladang Awana were part of the 650ha being investigated, a company spokesman replied: “The 422 acres of land which Lagenda acquired is in a different location [Mukim Durian Sebatang, near the Teluk Intan town centre]. It is not located in Sitiawan, Manjung, where we understand the 650ha reported in the media to be located.

“Furthermore, the 422 acres purchased by Lagenda is not designated as Malay reserve land. For completeness, note that Lagenda had engaged an independent adviser and also obtained the requisite shareholder approval prior to the acquisition of the 422 acres. The circular in relation to the transaction would also have spelt out the land’s particulars.”

The spokesman stresses that Lagenda had not sighted or been served with any official document regarding the MACC investigation.

It should be noted that Jee Ming is a director of Ladang Awana.

“We would like to establish that Ladang Awana is not in any way a part of the Lagenda Group of Companies,” said the spokesman.

Meanwhile, Epicon is also pushing back on the adverse newsflow, articulating that although it shares a common shareholder with Lagenda, the two companies function autonomously with no overlap in their management structures.

“Within our total order book, which amounts to RM1 billion, none of the contracts have been secured from Lagenda. Epicon continues its regular operations without disruption. The management team remains focused on its goals and is working diligently to achieve them,” its CEO Clement Valentine Toh Shu Yen tells The Edge when contacted.

Epicon was formerly ailing bus company Konsortium Transnasional, which bled losses since 2016 until it fell into Practice Note 17 status in April 2020 after the company’s auditor flagged its ability to continue as a going concern in an audit report. The bus company, which operated stage and express buses, then sold the latter to Nadi Corp and kept the stage buses. It resumed operations when the movement restrictions were lifted during the pandemic.

Having proved its profitability for six consecutive quarters to have its PN17 status lifted by Bursa on May 2, construction outfit Epicon is seeking to broaden its offerings to include infrastructure works apart from the construction of affordable housing in a bid to establish itself as a strong player in the highly competitive construction industry. It is also in the advanced stage of negotiations with two companies for a potential merger or acquisition to add other construction-related services to its stable. Toh hopes to seal the deal this year and believes that a 20% growth in revenue following the addition of the two new entities would be a fair expectation.

Whether the shock from the negative news will have any lasting impact on Epicon’s business remains to be seen. But since it does not undertake any of Lagenda’s projects, analysts believe the commercial impact will be less than what is expected on Lagenda’s side.

For the first quarter ended March 31, Epicon doubled its net profit to RM3.57 million from RM1.75 million in the previous corresponding period, on 164% higher revenue of RM56.2 million. Its net profit of RM4.69 million in the preceding quarter (4QFY2023) was a 209% improvement from the year before on higher revenue of RM58.9 million compared with RM28.98 million previously (see chart for Epicon’s financial results over the last five years).

Whether Epicon will be able to sustain the upward trajectory of its earnings, Toh points to its existing order book of RM1.1 billion and says the RM979 million worth of outstanding jobs can sustain the company for the next three years.

Year to date, Epicon has secured jobs worth RM330 million, which was the value of the jobs carried out in FY2023. The company’s tender book currently stands at RM1.2 billion.

“Going by our historical success rate of about 40% in landing those jobs, that should give us another RM400 million to RM500 million worth of contracts and exceed our target of a total of RM600 million this year. The existing order book will sustain us for the next three years,” says Toh, adding that Epicon’s gross profit margin last year stood at 10% to 15% while its net profit margin came in at 8%.

As at May 17, Epicon had a total of 15 contracts, including the development of 552 condominium units for RM50 million in Segambut, Kuala Lumpur, and the construction of three phases of single-storey terraced housing for RM89.1 million in Kinta, Perak. The company also clinched civil-related works such as the installation, testing and commissioning of underground cables for the subcontractor of Tenaga Nasional Bhd’s underground utility works in Perak, Kedah, Kelantan, Terengganu and Pahang, valued at RM130.89 million. Toh says about 70% to 80% of the contracts are third-party jobs.

“Epicon has proved itself to be ‘cancer-free’ with the lifting of its PN17 status by Bursa on May 2. The adverse news from the MACC probe linked to Lagenda may have spooked investors on both sides, but Epicon does not get its contracts from Lagenda and I don’t expect any contract cancellations from this rigmarole. That RM1 billion order book is solid,” says another analyst. 

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