Risk Factors

IN THIS PROSPECTUS. THE RISKS SET OUT BELOW MAY NOT BE EXHAUSTIVE AND ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN, OR WHICH ARE CURRENTLY DEEMED TO BE IMMATERIAL, MAY IN THE FUTURE, HAVE A MATERIAL ADVERSE EFFECT ON US AND/OR OUR SHARES. Our Group is involved in both construction and property development activities. However, our Group will predominantly focus on construction which is our core business, complemented by property development. 3.1 RISKS RELATING TO OUR BUSINESS AND INDUSTRIES IN WHICH WE OPERATE Our Group is subject to certain risks inherent in the construction and property development industries. These may include competition, over dependence on sub­contractors, cost overruns, concentration on contracts with the Government and GLCs, difficulty in sourcing strategically located land banks, defects liability, concentration on high-end property development projects, over dependence on key management and personnel, government regulations and controls,. financial risks and the availability and adequacy of funding for our operations and capital expenditure, management of rapid business expansion and growth, non-renewal and/or revocation of approvals, major licences, permits and the quality accreditations for our operations, changes in economic, political and credit conditions, intiation and changes in business conditions such as, but not limited to, changes in government policies, ability to procure sufficient contracts on a continuous basis to sustain our business operations due to the construction industry’s dependency on economic conditions, acute foreign labour and raw material supply shortages, increase in costs of labour and raw materials which cannot be passed on to our customers, deferral or rescheduling of projects and entry of new competitors into the sectors in which we operate. Further details of the abovementioned risk factors and the mitigating factors are set out in the following sections of this Prospectus. RISK FACTORS FOR OUR CONSTRUCTION AND PROPERTY DEVELOPMENT DIVISIONS 3.1.1 Competition Our Group is exposed to stiff competition from other construction and property development companies in Malaysia. Intense competition may result in highly competitive pricing in order to secure a construction contract or increase the sales of our property development projects, which may consequently affect the financial perfonmance of our Group. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 3. RISK FACTORS (Cont’d) We seek to stay competitive by inter-alia, actively participating in competitive bidding and negotiations to secure contracts, acquiring land banks in strategic locations, constantly updating ourselves on the latest market conditions, sustaining our track record and continuing our efforts in maintaining our competitive edge in terms of cost efficiency, service quality, reliability and innovativeness. We also believe that our experience and expertise in the ISS construction method and the energy saving and other technologically advanced green features that we have incorporated into our property development projects enhances our niche position in the construction and property development industries. However, notwithstanding the above, there can be no assurance that our Group will be able to compete effectively with current and new entrants in the construction and property development industries in the future which may have a material adverse impact on our Group. 3.1.2 Supply and Cost of Raw Materials The main raw materials used by our Group in our operations include steel bars, pre­mixed and ready mixed concrete, sand, aggregates, cement, plywood, timber and building materials, which are sourced and procured locally. We procure our raw materials from a varied base of suppliers and as such, there is no over-dependence on any single supplier for any raw material. In addition, to date, there has not been any shortage of the main raw materials that we use nor have we encountered difficulties in procuring raw materials at competitive prices as we source our raw materials from a large base of suppliers. However, there is no assurance that any future shortage in raw materials and/or increase to the cost of raw materials will not have a material adverse impact on us. 3.1.3 Dependence on Supply of Foreign Workers As at the LPD, our Group does not directly employ any foreign worker. Nonetheless, our business operations are indirectly dependent on foreign workers due to the shortage of local workers in the construction industry. Foreign workers are usually employed by our sub-contractors. The Govemment allows the hiring of foreign workers in the construction industry subject to certain conditions imposed by the relevant authorities which may change from time to time. Generally, applications to employ foreign workers will only be considered when efforts ·to find qualified local workers have failed. In the event that there is a .shortage in supply of foreign workers or any restriction on the number of foreign workers that our Group is allowed to employ for a project, the completion of our construction or property development projects may be delayed, resulting in an increase in overheads which may adversely affect our business operations and financial performance. However, moving forward, we anticipate that our customers will be more receptive towards fully adopting the ISS construction method or using more ISS components for our projects, thus reducing the number of manpower required to implement our projects and consequently reduce the need for the hiring of foreign workers by our sub­contractors. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 3. RISK FACTORS (Cont’d) 3.1.4 Dependence on Sub-Contractors Our sub-contractors are engaged on a project-to-project basis. Our Group is prudent in selecting our sub-contractors. We have a list of approved sub-contractors which was compiled based on their past experiences, track record and qualifications. We will usually invite these sub-contractors to submit tenders for our construction projects as and when required and select the most competitive tender, taking into consideration our project needs and the sub-contractor’s experience and track record. Our project managers will continuously review and evaluate the progress of work for each sub-contractor to ensure the quality and timely completion of our sub-contractor’s work. For the FYE 2011, our sub-contractors costs amounted to 83.31% of our proforma Construction Division’s cost of sales of RM244.03 million. Details of our sub-contractors who contribute 10% or more to our proforma total sub-contractors costs for the past 3 FYEs 2009 to 2011 are set out in Section 4.13 of this Prospectus. Although we have had a good working relationship with our sub-contractors and there has been no major disputes with them, there is no assurance that our Group will be able to procure supplies or services from our sub-contractors in a timely manner for our Group’s projects in the future. Nonetheless, our Board is of the opinion that sub­contractors can be readily engaged in view of the large number of contractors in the construction industry. Hence, the risk of over-dependence on any sub-contractor is minimal. 3.1.5 Cost Overruns In preparing for tenders for construction projects or planning for new property development projects, we normally carry out internal costing and budgeting estimates of raw materials, sub-contracting costs and other related costs and overheads based on the indicative pricing or quotations given by our suppliers and sub-contractors, as well as our own estimate of costs. However, there are a number of circumstances that could iead to additional costs not previously factored into the contract value or selling price of the properties, which includes, inter-alia, unforeseen circumstances such as adverse soil conditions, unfavourable weather conditions or unexpected construction constraints at the worksite and fluctuations in prices of raw materials and sub-contractors’ services as well as additional costs incurred that may not have been foreseen at the initial stage of planning for the construction or property development project. As certain of our construction contracts do not allow for any adjustments to the contract value or selling price consequent to the occurrence of the foregoing circumstances, such costs which are not previously factored into the contract value or selling price will lead to cost overruns and would have to be absorbed by us. Therefore, the additional costs, if any, arising from the abovementioned circumstances may reduce our profit margin for the project and accordingly, affect our profitability and financial performance. However, none of our sale and purchase agreement for property sales allow for subsequent adjustment to the selling price. To mitigate the risk of cost overruns, detailed planning and budgeting prior to tendering for construction projects or commencing our property development projects are carried out to ensure minimal cost overruns. In addition, we are promoting the wider use of IBS components to our customers. Usage of IBS components will reduce the number of construction workers required, minimise wastage, shorten the construction period and decrease our labour costs. 3. RISK FACTORS (Cont’d) 3.1.6 Delay in the Completion of Construction or Property Development Projects The timely completion of construction or property development projects may be subject to external factors beyond our control, such as obtaining permits or approvals from the relevant authorities, transfer of land title (if applicable), adequacy of raw materials, availability of workers and weather and land conditions. To mitigate such risks, critical success factors of each and every project are identified and tracked to ensure that our projects are implemented according to schedule. In addition to the identification of critical success factors, our project managers also perform pre­construction planning for all our projects which covers, amongst others, the project schedule, budget, construction methodology and resources required. The project plans and actual progress of work on our project sites are closely monitored and updated throughout the period of the projects to ensure that our projects are completed on time and within budget. However, notwithstanding the above measures, there can be no assurance that there would not be a delay in our projects which may result in legal uncertainties, liabilities, reduced efficiency and lower returns which in turn may have a direct impact on our Group’s future earnings and reputation. 3.1.7 Defects Liability Construction and property development projects commonly stipulates a defects liability period which ranges from 12 to 24 months from the official handing over of the completed projects to customers. During the defects liability period, we are liable for any repair work, reconstruction or rectification of any defects which may surface or be identified during this period, at our own cost. If we are required to rectify defects during the defects liability period, it may result in substantial additional cost to be borne by us and hence, the profitability of that particular project may be reduced. Our historical average percentage of the cost borne by our Group for defects liabilities over the total cost of a particular project for projects which has been completed and the defects liability period has ended in the past 5 FYEs, ranges from 0.02% to 0.67%. To mitigate this risk, strict quality control procedures are adopted before and after the completion of our construction and property development projects to ensure that all work specifications are met and the defects of our projects are minimal. However, there is no assurance that disputes, if any, arising during this defects liability period will not have a material impact on us. 3.1.8 Dependence on Key Management and Personnel Our Group’s continuing success will depend, to a significant extent, on the experience, knowledge, abilities and continued efforts of our existing Directors and key management personnel, some of whom have more than 20 years of experience in the construction or construction-related industries. Our Directors and key management personnel have been instrumental in the growth of our Group and are critical in maintaining the quality of our services and the relationships with our customers. Therefore, the resignation of any of these Directors or key management personnel without suitable and timely replacements may adversely affect our Group’s operations. We recognise the importance of our Group’s abiiity to retain the existing Directors and key management personnel as well as attracting new skilled personnel and have in place, various human resource strategies, which include, amongst others, competitive compensation packages and provision of extensive training to develop and enhance our employees’ knowledge and capabilities, as well as personal development programmes. 3. RISK FACTORS (Cont’d) Further, as part of our Group’s management succession plan, we have made continuous efforts to train and groom the younger members of our management team to gradually take on more responsibilities and gain more exposure in the various aspects of our Group’s business. However, in spite of the abovementioned measures, there can be no assurance that we will be successful in retaining our existing Directors and key management personnel or that there will be a smooth transition should changes occur, which may have a material adverse effect on our Group. 3.1.9 Government Regulations and Controls The operations of our Group’s construction division are mainly subject to the terms of the licences awarded by CIDB and PKK, which sets out the types and nature of aciivities in which a construction company in Malaysia can undertake. The operations of our property development division are also subject to other regulations such as the Housing Development (Control and Licensing) Act 1966 (Amendment) Act 2007, the Housing Development (Control and Licensing) Regulations 1989 (Amendment) Regulations 2008, the Housing Development (Housing Development Account) Regulations 1991 (Amendment) Regulations 2002, the Strata Titles Act 1985, the Building and Common Property (Maintenance and Management) Act 2007 and the Housing Development (Control & Licensing) (Amendment) Act 2012. We are also governed under, amongst others, the Occupational Safety and Health Act, 1994 and the requirements of local municipal councils. These regulations, acts and requirements are to control and protect individual consumers as well as to set minimum standards for the construction and property development industries. Typically, these laws and regulations provide for substantial fines and potential criminal prosecution for any breach. Any breach of these laws can result in permit revocation, cessation of or restriction in operations and remedial work required to be carried oul. All of our current and proposed property development projects are located in Kuala Lumpur, Selangor, Johor and Penang. The property development industry in Malaysia is subject to various state as well as federal governmental regulations, laws and policies. Such regulations, laws and policies include those affecting issuance of land titles, development planning, design and construction, payment of premium, limit on ownership of properties by foreigners as well as mortgage financing and refinancing. As a result, new laws, regulations or policies or changes to existing laws, regulations or policies could in the future, require us to incur additional costs, or affect our business, in ways that may have an adverse effect on our financiai position. For example, the “Build-Then-Sell (BTS) 10:90” mode of house ownership which is expected to be made mandatory by 2015, would not have a material impact or pose a material risk to our Group. The proposed timeframe for implementation of BTS is in the year 2015 which gives our Group sufficient time to prepare ourselves in terms of adjusting our Group’s mode of operations with regards to BTS and preparing the necessary financial resources when such ruling is effected. Upon implementation of the BTS concept, our Group may launch its property development projects on a smaller scale in line with our cash flow position at that point in time. However, our Listing is expected to enhance our abiiity to raise funding and strengthen our financial resources so that we are well positioned to undertake projects based on the BTS concepl. 3. RISK FACTORS (Cont’d) In addition, our Group currently undertakes niche developments where services and utilities infrastructure (such as water, electricity, sewerage etc) are readily available thus resulting in lower capital outlay in terms of related infrastructure costs and thus, BTS is not expected to have a material impact or risk to our Group. Niche developments undertaken by our Group is generally located in established and/or popular locations which have a higher predictability of sales. Although our Group has strictly complied and will continue to comply with these laws and regulations, there can be no assurance that changes to the present laws, regulations or policies or the introduction of new ones will not adversely affect our Group’s business. 3.1.10 Political and Economic Risks Adverse developments in political and economic conditions in Malaysia and other countries in which our Group may operate in future could materially affect the financial prospects of our Group. Political and economic uncertainties include, amongst others, risks of war, terrorism, riots, expropriation, nationalisation, renegotiation and nullification of existing contracts, changes in interest rates and method of taxation. In addition, a slowdown in the Malaysian economy or other countries in which our Group may operate in future could affect our operations and financial condition as the construction and property development industries are more likely to be affected by an economic slowdown. However, the Government’s likely pro-growth measures to stimulate the economy through the introduction of expansionary fiscal policies and increase in Government spending will usually result in an increase in construction activities which will be beneficial to our Group. While our Group seeks to limit the impact of such risks to our business through prudent financial management and efficient operating procedures, there is no assurance that adverse political and economic factors will not materially affect our Group. 3.1.11 Financial Risks and the Availability and Adequacy of Funding for Our Operations and Capital Expenditure Our working capital and capital expenditure requirements are funded by internally generated funds and external financing in the form of borrowings and credit arrangements with our suppliers and sub-contractors. We generally have credit tenms of up to 60 days with our suppliers and sub-contractors. Save as disclosed in Section 10.3 of this Prospectus, we do not have any other borrowings and indebtedness. However, future fluctuations in interest rates could materially affect our Group’s interest and principal repayments, given that our borrowings and the payment of interest are dependent on the prevailing interest rates. Currenliy, we enjoy good credit standing with our bankers and have adequate credit facilities for our operations. Our credit facilities may also be subject to periodic review and we are also bound by certain restrictive covenants pursuant to the credit facility agreements that we have entered into with our bankers and financiers, which may limit our Group’s operating and financial flexibility. Such restrictive covenants are commonly contained in credit facility agreements of such nature. Any breach of such covenants may give rise to a right by the banks/financiers to tenminate the relevant credit facilities and/or enforce any security granted in relation to the particular credit facility. Our Directors and relevant key management personnel will continue to monitor our Group’s compliance with all the covenants and take all precautions necessary to prevent any breaches. 3. RISK FACTORS (Cont’d) In addition, we may also be required to secure the requisite performance bonds or guarantees from bankslfinanciers to secure our performance under the relevant projects that we undertake. We are also normally paid progressively by our customers for our construction and property development projects while a portion of our contract sums may be retained for a period of 12 to 24 months during the defects liability period. The normal payment arrangement with our Group’s customers for construction contracts ranges from 14 days to 60 days from the date of issuance of the progress claim certificate by our customers’ consultants. The progress claim certificate is usually issued by our customers’ consultants approximately 1 month from the date of submission of the monthly progress claim by our Group. The normal payment arrangement with our Group’s customers for our Property Development Division is 14 to 21 days from the date of the progress billing. The average amount retained by our customers during the defects liability period is 2.5% of the contract sum for the Construction Division and 2.5% of the purchase consideration for the Property Development Division. Therefore, our Group may require additional external borrowings in order to fund working capital or capital expenditure requirements from time to time. In view of the above, our Group practices prudent financial management and conducts detailed forward planning in order to ensure that our funding requirements are adequately met and external financing, where necessary, is secured on a timely basis. In addition, our Listing will enable us to tap the capital markets in the future to meet long-tenm funding requirements when the need arises. However, there is no assurance that we will have sufficient credit facilities for our working capital and capital expenditure requirements or that future fluctuations in interest rates will not adversely impact our ability to meet financial obligations as and when they become due and payable. 3.1.12 Management of Rapid Business Expansion and Growth Our Group has envisaged various expansion and growth plans which include, inter-alia, venturing into PPP projects, expansion into new geographical markets overseas and expansion of our Property Development Division. Our Group’s future resources and investments will potentially be devoted to the aforementioned plans which may have an impact on our Group’s management, operational and financial resources. Our Group’s ability to manage future business expansion and growth will also require us to continue to enhance our operating, financial and other internal systems and to expand, develop, motivate and manage effectively our professional and administrative workforce. Our Group will also be subject to additional risks if we decide to operate in foreign markets. These risks include, amongst others, compliance with local regulatory requirements, fluctuations in foreign currency rates, any imposition of currency exchange and capital controls and unexpected adverse changes in regulatory requirements. In order to limit the aforementioned risks, our Group conducts detailed analysis of potential new overseas markets or segments prior to entering into any new markets or segments. Feasibility studies are also conducted prior to the acquisition of land banks. The analysis and feasibility studies that were undertaken include detailed projected profitability, preliminary market studies (to determine pricing and market acceptance of proposed project/product) and where required, initial projected cash flows. We are also boosting our workforce and attracting qualified personnel with the requisite experience and knowledge to assist us with our expansion plans. However, there is no assurance that our Group will not face the risk of over expansion or that our business expansion and growth will be successful or will contribute positively to our Group in the future. 3. RISK FACTORS (Cont’d) 3.1.13 Non-Renewal and/or Revocation of Approvals, Major Licences, Permits and the Quality Accreditations for Our Operations Our Group has obtained certain licences and permits from various governmental authorities and quality accreditations from internationally recognised bodies. Details of our approvals, major licences, permits and quality accreditations are set out in Sections 4.14 and 4.6.2 of this Prospectus. Some of these approvals, major licences, permits and quality accreditations are subject to periodic inspection as well as fulfillment of certain conditions imposed by the relevant authorities or bodies, and the standard of compliance required in relation thereto may be subject to change from time to time. Therefore, revocation or non-renewal of our approvals, major licences, permits and quality accreditations may have an adverse effect on our operations, business and reputation as we may lose certain customers and our track record may be tarnished. However, as at the LPD, our Group has not experienced any revocation and/or non­renewal of approvals, major licences, pemnits and quality accreditations. 3.1.14 Change to the accounting standards Our Group’s financial reporting is made in accordance with applicable approved FRS in Malaysia. The FRS and related interpretations may change after the date of this Prospectus. In particular, it is noted that the Malaysian Accounting Standards Board (“MASB”) has a number of ongoing projects to review the FRS and may release additional FRS or modify the existing FRS requirements from time to time. Any such additional standards or modifications may affect our accounting policies and accounting outcomes. Accordingly, different interpretations of the FRS may arise from time to time, and such change in interpretations may result in different accounting outcomes for our Group. On 19 November 2011, the MASB announced the issuance of the new Malaysian Financial Reporting Standards (“MFRS”) framework that is applicable to our Group. Our Group has elected for the continued use of FRS for the FYE 31 December 2012 as a transitioning entity and would subsequently adopt the MFRS framework from FYE 31 December 2013 onwards. As a result of the above, our Group will be required to adopt IC Interpretation 15 Agreements for the Construction of Rea/ Estate for the FYE 31 December 2013. An agreement for the construction of real estate shall be accounted for in accordance with FRS 111 Construction Contracts if the buyer is able to specify the major structural elements of the design of the real estate before construction begins and/or specify major structural changes once construction is in progress. Accordingly, revenue shall be recognised by reference to the stage of completion of the contract. An agreement for the construction of real estate in which buyers only have limited ability to influence the design of the real estate or to specify only minor variations to the basic designs is an agreement for the sale of goods in accordance with FRS 118 Revenue. Accordingly, revenue shall be recognised by reference to the criteria in paragraph 14 of FRS 118 such as transfer of significant risks and rewards, no continuing managerial involvement nor effective control, reliable measurement and others. As a result, revenue can only be recognised when all the criteria in paragraph 14 of FRS 118 are met. In the event the criteria are all met at a single time (for example at completion, upon or after delivery of real estate), revenue shall be recognised only then (for example at completion, upon or after delivery of real estate). 3. RISK FACTORS (Cont’d) Our Group currently recognises revenue and associated costs from the construction of real estate by reference to the stage of completion of the construction works and is in the process of assessing the impact of implementing the IC Interpretation 15 since the effects would only be observable from the FYE 31 December 2013 onwards. The adoption of IC Interpretation 15 may have a material impact on our Group’s future earnings as the adoption of this interpretation may result in timing differences in our recognition of revenue. ADDITIONAL RISK FACTORS FOR CONSTRUCTION DIVISION 3.1.15 Concentration on Contracts from the Government and GLCs Our Group’s past performance is mainly attributable to construction contracts secured from the Government such as JKR, Kementerian Pelajaran Malaysia, JPJ and FAMA, and GLCs such as Malaysian Resources Corporation Berhad and SPNB which were awarded to our Group through tenders and/or direct negotiations. The sales contribution from the Government and GLCs for the past 3 FYEs 2009 to 2011 are 48.62%, 28.30%, and 13.48% respectively. Due to relatively high credit risks and unstable payments frequently associated with private sector construction projects, our Group generally adopts a prudent policy when selecting and tendering for construction projects. Although our Group continues to build and maintain relationships with the Government and GLCs whose creditworthiness minimise collection risk, no assurance can be given that the relationship will continue indefinitely. Nonetheless, our Group has maintained cordial rapport with them and thus far has been able to deliver our obligations on a timely basis when undertaking such Government construction contracts. Our Group has also been actively sourcing for construction projects from the private sector as evidenced by the net revenue contribution from private entities (after consolidation adjustments) which shows an increasing trend from 51.38% in FYE 2009, 71.70% in FYE 2010 and 86.52% in FYE 2011. Furthermore, going forward, our Group will be carrying out property development activities to complement the construction business Whereby all construction work for our property development arm will be carried out internally. This will further reduce our Group’s dependency on Government and GLC contracts and to prevent “leakage” of the construction business from our property development arm. 3.1.16 Non-Renewal or Revocation of PKK Class A Bumiputera Contractor Status Our subsidiary, Gabungan Strategik, is currently a holder of the PKK Class A contractor licence, which allows it to undertake Government and Government related construction projects as the main contractor. In addition, Gabungan Strategik has also been accorded the PKK Class A Bumiputera contractor status by PKK. To maintain the Bumiputera status, Gabungan Strategik has to comply with certain conditions imposed by PKK, which includes, amongst others, the following: (i)  At least 51% of the ownership of shares of the company is held by Bumiputera;  (ii)  Ownership’ of the shares held by Bumiputera individual shares; and  Bumiputera  should  be  more  than  non­ (iii)  At least 51% of the members of the Board of Directors of the company are held by Bumiputera.
3. RISK FACTORS (Cont’d) Further details of the equity and other major terms and conditions imposed on the holder of the PKK Class A Bumiputera contractor status are set out in Section 4.14 of this Prospectus. However, upon Listing, Gabungan Strategik may not be able to comply with, amongst others, conditions (i) and (ii) as mentioned above. Therefore, non-renewal or revocation of Gabungan Strategik’s PKK Class A Bumiputera contractor status may result in the loss of certain customers and a decrease in Government and Government related construction projects to be undertaken by Gabungan Strategik. In spite of the above, our Board is of the opinion that the non-renewal or revocation of the PKK Class A Bumiputera contractor status accorded to Gabungan Strategik (if any) will not materially and adversely affect our Group’s operations and profitability as our Group is actively looking for other opportunities and other sources of income for the construction sector which does not require the PKK Class A Bumiputera contractor status. It should also be noted that the PKK Class A Bumiputera contractor status is not a pre-requisite for contractors bidding for all Government and Government related construction contracts because generally, not all Government and Government related construction projects are awarded to companies holding the PKK Class A Bumiputera contractor status only. In this regard, various Government and Government related construction projects are open for tender by companies either with or without the PKK Class A Bumiputera contractor status. Furthermore, in the event that Gabungan Strategik is not able to maintain the PKK Class A Bumiputera contractor status after our Listing, the company still holds the PKK Class A contractor licence and hence, is still able to bid for Government and Government related construction projects as the main contractor. In addition, as set out in Section 10.2.2 (iii) of this Prospectus, the revenue contribution from Government and GLCs is on a decreasing trend from 48.62% in FYE 2009, 28.30% in FYE 2010 and 13.48% in FYE 2011. Therefore, as our Group has built up a good reputation with its customers and in the industry, we have diversified beyond Government and GLC construction contracts. The letters of appreciation received from our customers which are set out in Section 4.6.2 of this Prospectus, is also proof of our customers’ satisfaction of our quality of services and reliability. ADDITIONAL RISK FACTORS FOR PROPERTY DEVELOPMENT DIVISION
3.1.17 Our property development business is dependent on the performance of the Malaysian property sector and may fluctuate from period to period All of our current and proposed property development projects are located in Kuala Lumpur, Selangor, Johor and Penang. Therefore, our property development business is dependent on the continuing growth of the Malaysian economy generally and the property sector in Malaysia specifically. As a result, our results may fluctuate from period to period in the future, which would be dependent on additional factors such as demand for our properties, the price at which we are able to sell, the timing of the launch of our properties, any adverse developments in property prices and ability to obtain financing. Our property development business is also subject to fluctuations in the property industry and is therefore vulnerable to any downturn in residential and/or commercial property demand in Malaysia. While our Group seeks to limit the impact of such risks to our business through prudent financial management and efficient operating procedures, there is no assurance that adverse development in the Malaysian property sector will not materially affect our Group. 3. RISK FACTORS (Cont’d) 3.1.18 Difficulty in Sourcing Strategically Located Land Banks The success of our property development activities is very much dependent on the locality and size of our land bank in order to achieve successful property launches which will sustain our profitability. Our Group currently owns strategic land banks within the Klang Valley, Pulau Pinang and Johor Darul Takzim totaling approximately 13 hectares, all of which are strategically located in prime areas and easily accessed by major highways. Details of our properties held for development as at the LPD are set out in Section 9.1.3 of this Prospectus. In order to sustain our Group’s future growth and profitability, our Group constantly strives to obtain strategically located development land in prime locations in Malaysia. However, replenishment of land bank is dependent on various factors, including, amongst others, size, price and suitability of the land, location, supply of sizeable land banks in growth areas, favourable Government policies and township planning. There can be no assurance that we will be able to identify and acquire attractive new sites at commercially acceptable prices and this could materially affect our ability to grow our property development business and maintain our profitability in the future. 3.1.19 High-End Property Development Project Concentration Certain of our Group’s residential development projects are positioned as high-end in nature and the ability of our Group to promote and sell these properties will depend, amongst others, on the design, concept, location, accessibility and quality of the particular development project as well as the reputation of our Group. Although high-end development projects usually command a premium in pricing and as such are mainly targeted towards a niche group of high net worth individuals/corporations, any negative reaction from these prospective purchasers may adversely affect the financial performance of our Group. In mitigation, prior to embarking on a new development project, our Group would usually conduct in-house surveys and research to understand the needs of the specific locality in order to determine the type of development based on the prospective demand. 3.1.20 Joint ventures We currently have joint venture arrangements and may continue in the future to have new interests in joint venture arrangements or other contractual arrangements in order to grow our Property Development Division. If there are disagreements between our joint venture partners and us regarding the business terms and operations of the joint ventures, we cannot assure you that we will be able to resolve these disagreements in a manner favourable to us. In addition, our joint venture partners may: • have interests or goals that are inconsistent with ours;
• take actions contrary to our instructions, requests, policies or objectives;
• be unable or unwilling to fulfill their obligations;
• experience financial difficulties; or
• have disputes with us as to the scope of their responsibilities and obligations even though all the tenms and conditions of the joint venture agreements would have been stipulated in the joint venture agreements.

3. RISK FACTORS (Cont’d) Any of these and other factors may materially and adversely affect the performance of our joint ventures and the projected returns from the property development projects, which may in turn materially and adversely affect our financial condition and results of operations.
3.1.21 Unsold properties In the event that we are unable to sell a significant portion of our properties, our financial results will be materially and adversely affected. Furthermore, the unsold properties that we continue to hold for sale post-completion may be relatively illiquid, which will limit our ability to realise cash from unsold units at short notice. Such illiquidity may also have a negative effect on the prices of unsold units in the event that we are required to sell the unsold properties urgently, and limits our ability to vary our portfolio of properties held for sale in response to changes in economic, political, social or regulatory conditions in a timely manner. In such an event, our cash flow and financial performance may be adversely affected. While our Group seeks to limit the impact of such risks to our business through prudent financial management and continuing marketing efforts, there is no assurance that the unsold properties, if continued to remain unsold, will not materially affect our Group’s results.
3.1.22 Risk relating to the Proposed Acquisition of Stylo Land As set out in Section 2.8 of this Prospectus, AQRS proposes to acquire the Stylo Land from Ng Kit Heng and Ow Chee Cheoon pursuant to the Proposed Acquisition of Stylo Land. Subsequent to the completion of the Proposed Acquisition of Stylo Land, AQRS intends to develop the Stylo Land into 2 blocks of commercial building with 2 storeys and 39 storeys respectively comprising a 2 storey commercial building. 34 storey SOHO. 5 storey car park podium and 1 basement carpark located in Bandar Sunway. District Petaling, Selangor Darul Ehsan to be known as “Stylo”, with an estimated GDV of approximately RM263.78 million as at the LPD.. In the event that the Stylo Land SPA cannot be completed within the stipulated time frame, the Stylo Land SPA will be tenminated and be rendered null and void. In this case, AQRS will be unable to develop the Stylo Land and obtain the envisaged GDV and gross profit arising from the proposed development project. In addition. Ng Kit Heng and Ow Chee Cheoon. who are both Executive Directors of Gabungan AQRS. would still be in possession of the Stylo Land. This would, represent a potential conflict of interest in view that Ng Kit Heng and Ow Chee Cheoon would remain the owners of the Stylo Land and that the AQRS Group (which is involved in property development) would be unable to develop the Stylo Land. In accordance with the undertaking letters dated 13 April 2012 (which had been provided to the SC). both Ng Kit Heng and Ow Chee Cheoon are to dispose the Stylo Land to a third party whom shall be a person not connected to either one of them and is to be disposed by way of open tender to be managed by an independent estate agent. Pursuant to the above letters of undertaking. the potential conflict of interest arising from their ownership of the Stylo Land has been mitigated. Further details of the aforesaid undertaking letters are set out in Section 8.4 of this Prospectus. 3. RISK FACTORS (Cont’d) 3.2 RISKS RELATING TO INVESTMENT IN OUR SHARES 3.2.1 No Prior Market for Our Shares Prior to this IPO, there has been no public market for our Shares. However, there can be no assurance that an active market for our Shares will develop upon Listing or, if developed, that such market will be sustained. The IPO Price has been determined after taking into consideration a number of factors including but not limited to, our Group’s financial and operating history, our future plans and the prospects of the industries we operate in. The prices at which our Shares are traded on Bursa Securities upon or subsequent to our Listing may vary significantly from the IPO Price and are dependent on market forces which are beyond our control. 3.2.2 Capital Market Risks and Share Price Volatility Our Shares will be listed on the Main Market of Bursa Securities. Shares of other companies listed on Bursa Securities have experienced considerable price volatility in the past. It is possible that our Shares will be subject to price volatility, which may have no direct correlation with our Group’s NA value, financial results or performance. Price volatility may also affect the ability of our shareholders to sell and the price at which our Shares can be sold. The market price of our Shares may also fluctuate as a result of variations in the liquidity of the market for our Shares, differences between our actual financial operating results and those expected by investors and analysts, changes in analysts’ recommendations or projections, changes in general market conditions and broad market fluctuations. The market price of our Shares may also be susceptible to new developments within the construction and property development industries, acquisitions by our competitors or the performance of our major customers or projects. In addition, the performance of our Shares on the Main Market of Bursa Securities could be affected by external factors such as the performance of regional and world bourses and the inflow and outflow of foreign funds. Sentiments may also be affected by internal factors such as the Malaysian economic and political conditions, overall market conditions as well as the growth potential of various sectors of the economy. These factors may contribute towards the general volatility of share prices on Bursa Securities, thus adding risk to the market price of our Shares, which could potentially result in substantial losses for investors holding our Shares. Nevertheless, our profitability and financial performance is not dependent on the performance of our Shares on Bursa Securities as our business activities have no direct correlation with the performance of securities listed on Bursa Securities. 3.2.3 Control by Promoters Upon the listing of our Group on the Main Market of Bursa Securities, the Promoters will hold approximately 60.16% of the enlarged issued and paid-up share capital of our Company. As a result, it is likely that they will still be able to, in the foreseeable future, effectively control our business direction and management as well as certain matters requiring the vote of our shareholders, unless they are required to abstain from voting by law and/or by the relevant guidelines or regulations. 3. RISK FACTORS (Coni’d) Nonetheless, as good corporate governance, we have appointed 3 independent non­executive Directors and set up an audit committee which consists of independent non­executive Directors, to inter-alia, ensure that all future transactions involving related parties, if any, are entered into on an arm’s length basis and are not detrimental to our minority shareholders. 3.2.4 Payment of Dividends We are principally an investment holding company and the core operations of our Group are carried out through our subsidiaries. Dividends and other distributions received from our subsidiaries are an important source of our income, and consequently, an important factor in our ability to pay dividends to our shareholders. Prior to the Acquisitions by Gabungan AQRS and Acquisitions by AQRS, Gabungan Strategik and Megah Ikhlas had on 20 June 2011, paid to their shareholders, a dividend of RM7,200,000 and RM5,500,000, respectively, the details of which are set out in Section 4.3.1 of this Prospectus. If our subsidiaries incur debts or losses, such indebtedness or losses may impair our subsidiaries’ ability to pay dividends or other distributions to us. In addition, we or our subsidiaries may obtain bank credit facilities or enter into other agreements which may also restrict the ability of our subsidiaries to pay dividends or distributions to us and our ability to pay dividends to our shareholders. Therefore, our ability to pay dividends or other distributions to our shareholders is dependent on, amongst others, the financial perfonmance, our existing debt servicing and financing commitments and cash flow position of our subsidiaries as well as any restrictive covenants in our future loan agreements. 3.2.5 Delay or Failure in Our Listing Our Listing may be potentially delayed or aborted due to the occurrence of anyone or more of the following events, which is not exhaustive: (i) the identified investors fail to subscribe for the portion of IPO Shares allocated to them although they have furnished their irrevocable written undertaking letters to subscribe to such IPO Shares;
(ii) the Underwriter exercises its rights pursuant to the Underwriting Agreement to discharge itself from its obligations thereunder;

(iii) we are unable to meet the minimum public shareholding spread requirements of Bursa Securities, that is, at least 25% of our enlarged issued and paid-up share capital must be held by a minimum number of 1,000 public shareholders holding not less than 100 Shares each at the point of Listing; or (iv) any force majeure event(s) which are beyond our control before our Listing. In such an event, we, together with the Offerors, will return in full, without interest, all monies paid in respect of any applications accepted. Nonetheless, we will endeavour to ensure compliance of the various requirements to avoid delays or non-implementation of our Listing. 3. RISK FACTORS (Cont’d) 3.2.6 Forward-looking Statements Certain statements in this Prospectus are based on histoncal data that may not be reflective of future results, while others are forward-looking in nature and are subject to uncertainties and contingencies. Such forward-looking statements, although believed to be reasonable at the point of issuance of this Prospectus, are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of our Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous estimates and assumptions regarding our present and future business strategies and the environment in which we will operate in the future. Such factors include, inter-alia, general economic and business conditions, competition, the impact of new laws and regulations affecting us and the industries in which we operate in, changes in interest rates and changes in foreign exchange rates. In light of these uncertainties, the inclusion of such forward-looking statements in this Prospectus should not be regarded as a representation or warranty by us, the Offerors, our Principal Adviser or any other advisers, that such plans and objectives will be achieved. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK


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