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THE executive directors of water treatment specialist Sanli Environmental are planting the seeds for overseas expansion and a potential move into long-term projects, but they are not in a hurry to reap yet.
After all, they reckon, their current source of sustenance - contracts from the Singapore government - should be enough to grow the business for the next few years, and they can afford to be careful and deliberate about finding alternative crops.
"We know we are stable, so we have the luxury to slowly evaluate," chief executive Sim Hock Heng said.
The conservative approach has its roots in the past experience of Mr Sim and his other executive directors - Kew Boon Kee, Pek Kian Boon and Lee Tien Chiat. Mr Sim, Mr Kew and Mr Pek set up Sanli in 2006 with a start-up capital of S$30,000 - "We forked out our last one, two months' of pay each," Mr Sim said - and Mr Lee joined them about a year later.
Before that, though, all four were working at Dayen Environmental, the water company that is now called Moya Asia. Dayen's initial public offering in 2002 was a key turning point that eventually led the four men to strike out on their own, Mr Sim said.
"When a company lists, there are changes," he said. "A lot of changes. Some companies change for the better, some companies take a long time to adapt ... In those years my bosses were pressured; pressured by investors to create more business while the water industry is not giving enough infrastructure work to keep them sustainable. So there's a bit of loss in focus, and they go into a lot of foreign countries, a lot of other investments. Being very passionate in water treatment, we decided to come out."
The collaborators felt confident about their prospects. Sanli, which earns almost all of its revenue from Singapore government contracts, was going after public-sector projects with the knowledge that the Singapore government was aggressively building up the country's water infrastructure. Their instincts paid off.
In the first year of operations, Sanli made S$1.2 million in turnover. That grew steadily over the years, and in the year ended March 2017, the company's turnover was S$64.3 million. In the early days, Sanli's contracts were mostly in the S$3,000 to S$5,000 range, with only a few around S$10,000 to S$20,000. Today, the biggest contract that Sanli is involved in is about S$115 million, of which its share is about S$51 million.
Hoping to take on larger projects - Mr Sim said that the second phase of Singapore's Deep Tunnel Sewerage System will offer contracts in the S$60 million to S$250 million range - Sanli began looking for external private capital for about two years.
"Listing originally was never my choice," Mr Sim said. "I see the good part of listing, and I see the challenges that we'll be facing."
Although Sanli does have some pre-IPO investors, including Heliconia, the Singapore-focused private equity arm of government investment firm Temasek Holdings, some private investors asked for too high of a price.
"People were knocking our doors, we are talking, but unfortunately they wanted a stake of the company, a major stake where we will lose control over it. So last year we gave up," Mr Sim said.
Turning away from the private route, the founders stepped onto the path for public listing. "That is the only way I can position myself to take up bigger, mega jobs," Mr Sim said. "So last June we decided, last December we embarked, and this June we are listed on Catalist."
In June, Sanli raised about S$11.7 million through its own IPO to buy a bigger factory and to take on bigger projects.
One of the goals for Sanli is to diversify its business. About 99 per cent of Sanli's revenue in fiscal 2017 came from the Singapore government, and the company is hoping to do more private-sector projects and to expand into the region. In fact, as the company explores opportunities in Malaysia, Indonesia, Myanmar and Vietnam, any work from those countries will probably be from the private sector, Mr Sim said.
Mr Lee explained that the company is also considering the possibility of pursuing build-own-operate contracts in those countries, which would be a significantly different kind of work from Sanli's existing engineering, procurement and construction (EPC) or operations and maintenance (O&M) projects.
"This is actually to establish another so-called business model for our company, to establish long-term recurring revenue so that we will not just rely on our current EPC model or the O&M model," Mr Lee said, adding that the company will be looking at starting small, perhaps in the S$5 million to S$10 million capital range, if it embarks on that kind of work.
That conservatism is intentional. The last thing that the company's founders want is to rush into a new project and make a loss that will affect the rest of the business, Mr Sim said: "Any wrong decision will have a big impact, especially for a newly listed company."
But the company can afford to be extremely deliberate, he added.
When asked about concerns that the company may be too exposed to the Singapore government's procurement pipeline, Mr Sim does not hesitate to argue that there is nothing to worry about for many years.
Singapore has stated that it aims to fulfil up to 85 per cent of water demand through reclaimed NEWater and desalination by 2060, up from the current 65 per cent. Those ambitions require heavy investment in water infrastructure. As SAC Advisors analyst Terence Chua noted in a recent report, the second phase of the DTSS is slated for completion in 2025, the Kranji Water Reclamation Plant is due for redevelopment after that, and significantly more new desalination capacity still needs to be built.
"I trust with the kind of contracts coming up we can keep the momentum going the next few years," Mr Sim said. "Today our order book is S$125 million, and this is equivalent to two times of our yearly revenue. So safe to say we are very comfortable, and at the same time we can actually go out to explore more into private sector and overseas jobs."
Sanli has clearly demonstrated its ability to win government contracts, Mr Sim added. The Singapore government's adoption of procurement policies that account for quality of work and not just price also means that Sanli will not have to worry about price wars. In fact, even as rivals that typically serve the oil and gas sector have tried to vie for government contracts over the past few years by offering cutthroat prices, Sanli has managed to keep those competitors at bay, Mr Sim said.
"They have no jobs, so they are bidding way ridiculous prices," he said. Despite never being the lowest in bid prices, Sanli has managed to clinch contracts, because of its emphasis on quality, "and being able to deliver every time".
An advantage of having the Singapore government as a customer is that the latter is an extremely reliable paymaster. "We know we are stable, so we have the luxury to slowly evaluate and make sure that we only close those contracts that are viable," Mr Sim said.
Picking the right industry and sticking to it is the first limb of a three-legged stool that Mr Sim is leaning upon to prevent the perceived mistakes that led him and his fellow directors to leave their previous company. "I always believe on staying focused," he said.
The second leg is to have good management. Mr Sim explained that the four key directors have a complementary set of skills - Mr Sim in electrical engineering, Mr Kew in instrumentation and control, Mr Pek in mechanical engineering and Mr Lee in processes - that allow Sanli to be a one-stop shop.
All four are still heavily involved in projects, and they described their relationship as "cohesive". In setting up the interview for this article, the company asked that the directors be interviewed together, even though Mr Sim was the designated spokesman most of the time. On the day of the interview itself, Mr Pek could not turn up because he had to attend to an urgent matter with one of the current projects.
The third leg of the company's key philosophy is to have a good core team of workers. Mr Sim said that Sanli employs an unusually large number of workers, but this was a decision to ensure quality and reliability by reducing dependence on outsourcing.
"We wanted a big team," Mr Sim said. "We're taking the pain, we have all these guys with us, and we are trying to specialise. The specialised equipment? We'll do it ourselves. Those general works, like building services, fire alarms, we'll outsource everything, so that we have our core competency that others do not have. That makes us different."
The founders, who are aware of the risk of workers leaving, make it a point to invest in their workers as well. "We are still very involved, because we know that the staff in the company is the driver of the company," Mr Sim said. "It's not really the top management. At multimillion contracts, we cannot be on site every day to drive it. The guys are doing it. From the last company, I started to realise, actually human is the most important."
Despite their initial reservations about listing and what it would do to the company, the directors have come to appreciate the benefits of becoming a public company, and see it as a necessary step for organic growth. For example, the new chief financial officer, Toh Chiew Khim, has been teaching the project teams about how to optimise their expenses, Mr Sim said.
"To me, in a nutshell, listing really makes a difference ... Like my last company, same thing, my bosses are engineers, so when the company listed, honestly they were lost," he said. "We gained the experience, we saw how they got lost. There are so many things involved, and it's really a big challenge. Through them, I think we benefited from the exposure we went through."