VESTLAND Resources’ award of a RM110mil contract to beleaguered TXCD Bhd is notable.
The question here is whether TXCD has the financial wherewithal to do the job.
The RM110mil subcontract, awarded to TXCD’s construction subsidiary Ageson Kensetsu Sdn Bhd, is about eight times TXCD’s total equity of RM13.9mil and roughly 10 times its financial year 2026 net profit of RM10.8mil.
At the same time, TXCD is still restructuring. Its revised regularisation plan includes a RM281.5mil capital reduction to offset accumulated losses, the disposal of non-core subsidiaries and a RM22mil private placement mainly for working capital.
The plan remains pending Bursa Malaysia’s approval.
While TXCD is not loss-making, its financial position remains fragile. It had only RM15.8mil in cash against RM80.6mil in current liabilities as at June 30, including RM75.7mil in trade payables.
Taking on a RM110mil project that runs until 2028 could put further strain on its finances, particularly if project costs have to be funded ahead of progress payments.
TXCD was classified as a Practice Note 17 or PN17 company in October 2023 after its auditor issued a disclaimer of opinion on its 2022 financial statements, citing insufficient audit evidence and concerns over certain assets, receivables and revenue.
Its financial position subsequently deteriorated, with shareholders’ equity falling to RM2.38mil and accumulated losses reaching RM279.5mil by September 2024.
While TXCD has since returned to profitability, it remains under PN17 as it has yet to complete its regularisation plan and repair its balance sheet.
After the proposed disposals, Ageson Kensetsu could become TXCD’s sole operating subsidiary. Any significant cost overrun, delay or dispute could therefore have a disproportionate impact on the company.
Nevertheless, for TXCD, the RM110mil contract could be an important lifeline. For Vestland, however, it means entrusting a sizeable, multi-year project to a contractor that is still in the process of repairing its balance sheet.