Risk Factors

RISK FACTORS 

NOTWITHSTANDING THE PROSPECT OF OUR GROUP AS OUTLINED IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS THAT MAY HAVE A SIGNIFICANT IMPACT ON OUR FUTURE PERFORMANCE, IN ADDITION TO OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS PRIOR TO INVESTING IN OUR SHARES.

If you are in any doubt as to the information contained in this section, you should consult your stockbrokers, bank managers, solicitors, accountants or other professional advisers.

RISKS RELATING TO OUR BUSINESS 

(i) Dependency on the continued services of our key management 

We believe that our Group’s continued success is largely dependent upon the continuing efforts of our Managing Director and Executive Director namely, Dato’ Sri Cheong Kong Fitt and Dato’ Cheong Peak Sooi for their leadership, strategic business planning, development, management of our Group and key management personnel. Our Executive Directors have played a pivotal role in our day to day operations as well as charting, formulating and implementing strategies to drive the future growth of our Group.

Our continued success will depend on, to a certain extent, our ability to retain the service of our Executive Directors and key management personnel. The loss of their services without suitable and timely replacement, or our inability to attract and retain other qualified personnel, may affect our Group’s ability to compete in the industry and could adversely affect our operations and hence, our revenue and profitability. Our Group have not experienced any past occurrence of the aforementioned risk.

In mitigating the above risk, our Executive Directors who are also the Promoters and Shareholders of our Company will continue to manage our Group and our business operations. Our Managing Director, Dato’ Sri Cheong Kong Fitt has been with us since incorporation, i.e. from 2006 to date, whilst our Executive Director, Dato’ Cheong Peak Sooi has been with our Group for eight (8) years, since 2008 to date. Our Executive Directors and key management personnel’s contributions to our Group includes, the construction and completion of our Terminal AmanJaya in Ipoh, Perak, the expansion of our bus services operations through the increase in the number of stage buses and expansion into the operations of express bus services, and the improvement in our Group’s financial performance in the last three (3) years. Having said the above, our Executive Directors and key management personnel remain committed to contribute their efforts to the continued growth of our Group’s business.

We shall endeavour to retain our current key management personnel, by reviewing our key managements’ remuneration packages, employees’ benefits and rewarding our key management personnel and employees from time to time, provide opportunities for our key management to develop and enhance their knowledge and skills relating to our business via sponsorship for training and courses, as well as continue to identifY new taleuts for the purpose of succession planning, by training and growing our existing pool of employees to helm future management positions. We may also hire more qualified and experience staffs to help grow our Group.

(ii) Non-renewal or revocation of vehicle permits, bus route permits and/or business licenses 

In the event that our vehicle permits, the bus route permits and/or business licences are not renewed or are revoked, there will be a materiai adverse impact on our integrated pubiic transportation terminal, bus services and petrol stations operations as we will not be able to carry on the affected segment of our business without such valid vehicle permits, bus route permits and/or business licenses.

We recognise the importance of timely renewal of these permits and licenses and our Board shall endeavour to fulfil all conditions imposed by the relevant regulatory authorities for the aforesaid renewal. Our Group has not encountered any difficulties in renewing its vehicle permits, bus route permits and business licenses in the past. However, there can be no assurance that the regulatory authorities will renew our vehicle permits, bus routes permits and business licenses without delay or will not vary, modify or impose further conditions on our Group for the renewal of the said licenses in the future. Nevertheless, the renewal or expiry of any of the vehicle permits, the bus route permits and/or business licences are specific to the affected licence only, and shall not affect and/or hamper the validity and/or legality of the other vehicle permits, the bus route permits and/or business licences.

At this juncture, our Terminal AmanJaya has yet to be granted the terminal licence for its terminal operations by SPAD (“Terminal Licence”), as SPAD has yet to finalise its internal regulatory framework for the issuance of any bus terminal licences (“Framework”). Pending the fmalisation of this Framework, SPAD has not issue any Terminal Licence to all the bus terminals in Peninsular Malaysia. Section 6 of the Land Public Transport Act 20 I0 (Act 715) provides that no person shall operate a terminal unless he holds a Terminal Licence, and should a terminal be operational without a Terminal Licence, the operator can, on conviction, be liable to a fine not exceeding RMI,OOO,OOO; or to imprisonment for a term not exceeding five (5) years; or to both. In this regard, The Combined Bus requires a Terminal Licence for the operation of Terminal AmanJaya. SPAD via its letter to our Group dated 2 September 2015, has nevertheless confirmed that pending the fmalisation and implementation of their internal Framework, it is unable to issue Terminal Licences to any bus terminal and as such, Section 6 of the Land Public Transport Act (2010) (Act 715) will not be enforceable on the operations of Terminal AmanJaya. Additionally, SPAD also confirmed that any offences/penalties pursuant to Section 6 of the Public Transport Act (2010) (Act 715) that may emanate from the non-­possession of a Terminal Licence are inapplicable to Terminal AmanJaya.

We recognise the importance of procuring the Terminal Licence, and complying with the conditions imposed in the Terminal Licence (if any) when the same is issued. Our Board is monitoring and liaising closely with SPAD in the Group’s pursuit of this Terminal Licence. In June 2016, SPAD commenced the registration process for the licencing of all terminals, and on I July 2016, The Combined Bus submitted its formal application for the Terminal Licence. As ofto date,theTerminalLicense ispendingissuance.OurBoard isoftheviewthattheeventual issuance of the Terminal Licence is a matter of procedure considering that our Terminal AmanJaya has already commenced operations with the relevant business licences and we have also obtained certificate for fitness of occupation for our Terminal AmanJaya premises.

In addition, SPAD and the State Government have recognised the commencement of terminal operations of Terminal AmanJaya on 25 September 2012 and has in the past, issued directive letters and a SPAD Circular stating that all express buses entering and exiting Ipoh must drop off and pick-up passengers exclusively at Terminal AmanJaya, except circumstances where written permission is given by SPAD. Further, Terminal AmanJaya has also been gazetted by the Mayor of Ipoh City as the station for public service vehicles (bus and taxi services) with effect from 31 July 2012. The significance of having the gazette is that, MajIis Bandaraya Ipoh has recognised Terminal AmanJaya as the station for public services vehicles.

Although SPAD and the State Government have recognised the commencement of terminal operations as stated above, there is a possibility that (i) the Terminal Licence could be issued to our Group with conditions which our Group may be unable to fulfill; or (ii) the Terminal Licence will not be issued. This will have a material adverse effect on our revenues and earnings from integrated public transportation terminal operations.

(iii) Adequacy of insurance coverage 

Our Group is mainly involved in terminal operations and provision of bus services. As such, our terminal is exposed to emergency and security risks such as fire, flood, theft and vehicular accidents as well as other adverse events. Such incidences may affect the operations and financial performance of our Group.

Our Group is aware of the adverse consequences arising from inadequate insurance coverage for the accidents and outbreaks that could disrupt our business operations. As at to date, our Group have not experienced any past occurrence of the aforementioned risk. In order to ensure that such risks are maintained to the minimum, we regularly review and ensure adequate insurance coverage for our assets. In addition to the insurance for our fleet of buses, our Group has insurance coverage for our terminal, office premises and petrol stations such as fire insurance, burglary insurance and inland transit insurance. However, there is no assurance that this coverage would be sufficient to cover all potential losses and indemnify us against all possible liabilities arising from our operations as well as to offset the potential financial losses arising from public liability, fire, theft and personal accidents. Our business and financial performance may be adversely affected in the event that such claims exceed the coverage of our insurance policies.

(iv) Borrowings and interest rate risks 

As at the LPD, our total short-term and long-term borrowings amounted to RM30.99 million and RM89.17 million, respectively. Our Group’s gearing for the FYE 2013, FYE 2014, FYE 2015 and the FPE 2016 were 1.33 times, 1.29 times, 0.95 times and 1.01 times, respectively. Therefore, we are susceptible to fluctuations in interest rates. We may also face difficulties in obtaining additional financing from the financial institutions to fund our working capital and future business expansion in the event that we are unable to meet the repayment obligations. We have not defaulted in any of our obligations in the past and our Board have and will continue to embark on detailed feasibility studies of new projects prior to engaging on more high capital intensive investments.

There can be no assurance that our gearing level will remain the same in the future and our performance would remain favourable in the event of any adverse change in the interest rates in respect of new financing facilities that are procured. Notwithstanding the above, our Board shall evaluate and closely monitor the financial position of our Group prior to entering into any new credit facilities in order to meet the repayment obligations.

(v) We are dependent on our major customers

We derive a significant portion of our Group’s income from rental of A&P space at Terminal AmanJaya and Project Facilitation Fee. With regard to rental of A&P spaces, we recorded revenues of RMIO.17 million, RM19.34 million, RM17.45 million and RM5.91 million respectively in the FYE 2013, FYE 2014, FYE 2015 and the FPE 2016. Our GP margins for the rental of A&P space in the FYE 2013, FYE 2014, FYE 2015 and the FPE 2016 were 99.92%,99.96%,99.95% and 99.95% respectively. Further, in regard to the Project Facilitation Fee, our Group recorded revenues of RM3.80 million, RM9.67 million and RM2.40 million respectively in the FYE 2014, FYE 2015 and the FPE 2016. Our GP margins for the Project Facilitation Fee in the FYE 2014, FYE 2015 and the FPE 2016 were 59.56%, 84.04% and 76.88% respectively. Our Group did not derive any income for the Project Facilitation Fee in FYE 2013.

Under the financial years/period under review, we had three (3) major customers, namely Rezeki Megajaya, Maksima Timur and Century Edge Group who had in aggregate, contributed approximately 32.64%, 36.42% and 31.22% to the revenue of our Group for the FYE 2014, FYE 2015 and the FPE 2016 respectively. Our Group had no major customer(s) in the FYE 2013. Therefore, our Group is dependent on our major customers in the rental of A&P spaces and Project Facilitation Fee. The details of our reliance together with the arrangement are set out in the ensuing paragraphs below.

(a) Rezeki Megajaya was our customer for rental of A&P spaces at Terminal AmanJaya and the rental arrangement was “incentive-based” on the actual rental of A&P spaces income our Group receives from Rezek! Megajaya. The “incentive-based” rental arrangement was to encourage Rezeki Megajaya to promote our Group’s A&P spaces in Terminal ArnanJaya, which our Group shall pay incentives to Rezeki Megajaya based on the criteria as disclosed in Section 4.6 ofthis Prospectus. We recorded revenues from Rezeki Megajaya mainly for rental of A&P spaces of RM19.34 million and RM4.71 million for the FYE 2014 and FYE 2015 (I.e. from January to March 2015), respectively. This company undertook A&P services, including the sales of outdoor three-faced advertising billboard located within the compound of Terminal ArnanJaya, since I January 2014.

However, the company had ceased to be our Group’s customer for A&P services in Terminal AmanJaya in April 2015 as the company had focused its management work services and resources on bus hire-charter, leisure and commercial travels and tours business activities. For the FYE 2015 and for the FPE 2016, we recorded revenues from Rezeki Megajaya of RM4.67 million and RM2.17 million, respectively for bus charter services. Rezeki Megajaya utilised our Group’s buses for bus charter services as well as the use of internal and external spaces of the buses for the purposes of bus advertisement. Kindly refer to Section 4.3.2.3 of this Prospectus for further details of our Group’s bus charter services to Rezeki Megajaya.

Our Group had subsequently entered into agreements with two (2) other companies, namely, Century Edge Group for the rental of promotional spaces and Angkasa Aman for the rental of advertising spaces at Terminal AmanJaya. The aforementioned agreements with the parties are for a period of one (1) year commencing from April 2015 and shall be renewed for subsequent periods of one (1) year unless otherwise terminated, and on April 2016, both of these agreements were renewed. The rental arrangement with Century Edge Group and Angkasa Arnan was on fixed monthly rental basis. For the FYE 2015 and FPE 2016, Century Edge Group contributed approximately 9.74% and 13.28%, respectively to our Group’s revenue. For the FYE 2015 and FPE 2016, Angkasa Arnan contributed approximately 7.45% and 9.93%, respectively to our Group’s total revenue. This is following our Group’s decision to engage different agents to focus on different A&P space sales segments. Having said this, in the event these customers terminates or did not renew the agreements with our Group, we may face the risk of inability to seek for timely replacement for new customers, which may then affect the income contribution from the A&P segment to our Group.

Century Edge Group provides marketing solution, event management and real estate services. The principals of Century Edge Group have four (4) to seven (7) years of experience in event management. Some of the past projects undertaken by Century Edge Group include organising promotional events at shopping malls and property exhibitions for property developers such as The Haven Lakeside Residences located in Ipoh, Ipoh South Precinct development, Kampus West City development located in Kampar as well as roadshows and exhibitions for Unisquare development located at Kuala Kangsar.

Meanwhile, Angkasa Arnan is a design and advertising company that specializes in outdoor and indoor advertising, printing of barmers, buntings, posters and rental management of promotional space and billboards. The principal of Angkasa Arnan has approximately ten (10) years of experience in sales and advertisement design. Angkasa Arnan offers various kinds of signboards, billboards and signages to its customers as well as assists in the installation and dismantling of the signboards and billboards. Angkasa Arnan also works closely with private companies, property developers and government agencies to obtain permission to erect billboards on their lands or buildings.

These promotional spaces and billboards are then marketed to its clients such as telecommunication companies and property developers. Some of the past indoor and outdoor advertising projects undertaken by Angkasa Arnan were advertising spaces for Sunway Lost World Theme Park, TGV Cinema, Sri Kancil Development Sdn Bhd and billboards for government agencies such as Majlis Daerah Tapah.

When our Group commenced the commercial operations of Terminal ArnanJaya in September 2012, our Management focused on ensuring the smooth delivery of terminal operations by liaising with the relevant authorities for the necessary approvals and funding, encouraging express bus operators to migrate from the Medan Gopeng express bus station to Terminal AmanJaya, soliciting tenants and promoting our terminal to users ofpublic transportation. Rezeki Megajaya was our Group’s customer for the rental of A&P spaces including the rental of outdoor three-faced advertising billboard located within the compound of Terminal ArnanJaya, since I January 2014. The terminal management will then work closely with this company to organise the events that were held in the terminal and the terminal management shall have all the details and contacts of the end users of A&P that advertise in the terminal or occupy the promotional spaces i.e. portfolio of customers.

As our Group’s A&P activities continue to grow, our Group hired two (2) A&P personnel in 2015 to manage these activities and has been working closely with Century Edge Group and Angkasa Arnan. Our A&P managers have approximately five (5) years ofworking experience in advertising, promotional activities and marketing sector.

It is noted that for the past years, Terminal ArnanJaya has been utilised to host many events and promotional activities and this contributed positively to our Group’s revenue. The main attraction/reason for any advertiser and event manager to hold their events at the terminal is due to the terminal’s ability to provide a high human traffic movement. This is possible because Terminal ArnanJaya is one of the main public transportation entrance/exit gateways to Ipoh.

Following thereto, we foresee that Terminal AmanJaya will continue to attract more event management agents and customers to utilise the terminal’s facilities and advertise at Terminal AmanJaya. Moving forward, our Group plans to build a team of business development and events-management personnel within a span of two (2) years. With the experienced and trained workforce in this department, we will be able to manage the A&P activities and work with any third party apart from Century Edge Group and Angkasa Aman in the future. We may also consider to collaborate with other marketing agencies, media industry players and event management companies to create awareness in our Terminal AmanJaya and market Terminal AmanJaya as an ideal platform for retail tenants and external parties to reach a wider consumer segment through social media advertising, flyers distribution and promotional events. With these plans, our Group envisages that any dependency on third parties for our A&P activities can be mitigated.

(b) For the FYE 2014, FYE 2015 and the FPE 2016, our Group recorded revenues of RM3.80 million. RM9.67 million and RM2.40 million from Project Facilitation Fee which contributed to approximately 4.90%, 13.04% and 9.42% of our Group’s total revenue. Maksima Timur is our Group’s sole customer in regard to Project Facilitation Fee. The Project Facilitation Fee is derived from the services by our Group to Maksima Timur, which include rental of Terminal AmanJaya’s equipment, utilities and facilities, preparing preliminary concept paper for proposed project, discussion and sharing of knowledge relating to design, planning and construction of terminal and attending all meetings organised by Maksima Timur with SPAD and other relevant governmental departments Kindly refer to Section 3.1 (ix) and Section 4.3.1.3 of this Prospectus for further details.

Premised on the above, any loss of revenue from the above customers will significantly impact our Group’s financial results. In addition, the loss of any of these customers, if not replaced, may adversely affect our fmancial condition and results of our operations.

(vi) Expiry and non-renewal of tenancy agreements 

A substantial number of the tenancies in Terminal AmanJaya are for terms of two (2) years. As a result, our Group is exposed to a significant rate of expiring tenancies at the end of each tenancy cycle.

The expiry of the tenancies ofTerminal AmanJaya as at LPD can be summarised as below:

(a) approximately 27% ofthe total tenancies will be expiring in FYE 2016;
(b) approximately 47% of the total tenancies will be expiring in FYE 2017;
(c) approximately 25% of the total tenancies will be expiring in FYE 2018; and
(d) approximatelyI%ofthetotaltenancieswill beexpiringin FYE2019.

Given the tenancy expiries as shown above, our Group may be, to a certain extent, be exposed to the typical risks associated with tenancy expiries, which include, inter alia, the risks of non­renewal of tenancies, reduced occupancy rates and lower rental income to our Group.

Over the past three (3) FYE 2013 to FYE 2015 and the FPE 2016, 21 tenancies, representing approximately 30.43% of the total tenancies (i.e. as at FPE 2016, with total 69 tenants) were not renewed. These tenants consist of one (I) operator of entertainment centre (7,879.22 sq ft), eight (8) operators of food and beverage kiosks (9,829.01 sq ft), two (2) self-service terminal operated by two (2) banks (401.00 sq ft), five (5) apparel and accessories shops (2,564.77 sq ft), one (I) convenience store (427.39 sq ft), two (2) ticketing counters (80.00 sq ft) and two (2) computer and mobile phone shop (796.03 sq ft). The above-mentioned 21 tenants occupied a total leased area of 21,977.42 sq ft (approximately 13.38%) of the totallettable space in our Terminal AmanJaya. The total annual rental contribution from these 21 tenants was approximately RMO.57 million.

Notwithstanding the low non-renewable rates in the past as shown above, there can be no assurance that the above risks will not adversely affect the financial performance of our Group in the future. Hence, to mitigate such risks, our Group will exercise its best endeavours to manage the Terminal Amanlaya, inter alia, but not limited to, continuously engaging and fostering a good relationship with the tenants as well as to ensure that the terminal remains competitive in terms of rental, terminal management and its physical conditions.

(vii) Renovation or redevelopment works to our Terminal AmanJaya, arising from physical damage and/or image enhancements may disrupt the operations of our Terminal AmanJaya 

Our Terminal Amanlaya was newly constructed in 2012. Physical damage to our Terminal Amanlaya resulting from fire or other causes may potentially lead to a significant disruption to the business and operations of our Terminal AmanJaya. In the event of the occurrence of such unfortunate incidences, we will have to undertake the necessary renovation and/or refurbishment works in order to repair the damages, which may disrupt the operations of our Terminal AmanJaya. Together with the foregoing, the repair works may impose unbudgeted costs and result in an adverse impact on the financial condition and results of operations of our Group.

Over time, our Terminal Amanlaya may need to undergo renovation or redevelopment works from time to time and may also require unforeseen ad hoc maintenance or repairs to faults or problems that may arise from time to time. The costs of maintaining our Terminal AmanJaya and risk of unforeseen maintenance or repair requirements may increase over time as the building ages. Over the coming years, our Terminal Amanlaya may also undergo image enhancements so as to continue attracting OUf retail tenants. As a result thereof, the businesses and operations of our Terminal AmanJaya may suffer some disruptions and it may not be possible for our Group to collect the full rental income on the space affected by such renovation or redevelopment works.

As at to date, our Group has not experienced any past occurrences of the aforementioned risks.

(viii) Certain incentives or tax exemptions from the authorities may no longer be available to us in the future 

We are beneficiaries of certain incentives and tax exemptions offered by MoF and SPAD. For details of the incentives and tax exemptions presently enjoyed by our Group, kindly refer to Section 4.4 (v) of this Prospectus. However, there is no assurance that the authorities will continuously provide these incentives and tax exemptions, and the authorities may choose to discontinue, revoke or modify the incentives and tax exemptions we currently receive due to circumstances such as a change in laws and/or policies. As such, our financial results may be adversely affected should the incentives or tax exemptions may be revoked, discontinued or modified.

The following table shows the financial impact to our Group assuming the individual incentives claimed by our Group for the past three (3) FYE 2013 to FYE 2015 and the FPE 2016 are not available to our Group, which is provided herewith on hypothetical basis purposes only:
Sales tax exemption and/or GST exemption of CKD buses and air­conditioning equipment From FYE 2013 to FYE 2015, we have been exempted up to RM2.44 million of sales tax. Further, the sales tax exemption has been replaced with the GST exemption of CKD buses and air conditioning equipment since April 2015. There is no fixed tenure or expiry period for our Group to claim for the GST exemption of CKD buses and air­conditioning equipment.  459  1,034*  870*  (693)  (83)  Approved Service Project Status (tax investment allowance) OUf Group can claim up to 60% of the amount of capital expenditure invested for a period of 5 years between FYE 2012 and FYE 2017. From FYE 2013 to FYE 2015 and the FPE 2016, the Group had claimed up to RM51.92 million investment tax allowance and have utilised RMI0.42 million to off-set taxable profits during these periods.  12,264 (As at FPE 2016, the total tax investment allowance of RM88.37 million has not been utilised which can be used to off-set against any future taxable profits)  (4,871)  (5,449)  (6,212)  (606)  Government grant for the construction of Terminal AmanJaya Our Group received the one-time Government grant of RM9.98 million which is amortised over 50 years period  Nil (as this is a one­time Government grant received)  (200)  (200)  (150)’  (50)’  ISBSF  1,867  (2,909)  (2,329)  (1,819)’  (608)’  For the past three (3) FYE 2013 to FYE 2015 and the FPE 2016, our Gronp had received cash of RM8.47 million from SPAD. The lSBSF is renewable every six (6) months  TOTAL  (6,946) ‘”  (7,108) (2)  (8,874) (2)  (1,347) (2)
Notes: In relation to the Government grant, the difference in the impact to our Group’s PAT for FYE 2015 and FPE 2016 as compared to FYE 2013 and FYE 2014 was due to the income tax expense charged to the Government grant in FYE 2015 and FPE 2016, respectively. For FYE 2013 and FYE 2014, no income tax expenses were recorded as there were sufficient unabsorbed capital allowances to off-set against the respective financial years. The unutilised capital allowances were fully utilised by our Group in FYE 2015. # In relation to the ISBSF, the impact to our Group’s PATfor FYE 2015 and FPE 2016 shall be net of income tax expenses charged to the ISBSF during the financial year and financial period, respectively. For FYE 2013 and FYE 2014, no income tax expenses were recorded as there were sufficient unabsorbed capital allowances to off-set against the respective financial years. The unutilised capital allowances were fully utilised by our Group in FYE 2015. 3. RISK FACTORS (Cont’d) *
(1) (2) The positive financial impact recorded in FYE 2013 and FYE 2014 to our Group’s PAT (without sales tax exemption ofCKD bus and air conditioning equipment) represents a lower tax expenses scenario. This is due to the timing difference of the capital allowance computed based on the sales tax exemption amount that was added back to the value of the new buses. The higher purchase value (which is the sales tax exemption amount) enable our Group to claim for a higher tax capital allowances resulting in lower tax expenses. The recognition of depreciation in financial accounting and the tax capital allowance in tax accounting are different because ofthe timing differences. For example: • under the tax capital allowance calculation, the newly acquired buses will be fully depreciated in 4 years (First year is depreciated at 40%, i.e. Initial allowance is at 20% and annual allowance is at 20% and subsequent 3 years ofannual allowances are at 20% respectively); more capital allowances claim reduces taxable income, which subsequently reduces taxes; and • based on the straight-line depreciation of6.67%for the new stage buses and 10%for the new express buses, the buses will only be fully depreciated in 15 and 10 years, respectively. Tax capital allowance is front-loaded whilst accounting straight-line depreciation is evenly distributed. With the different rates used between tax capital allowance and depreciation, it enables our Group to claim for higher tax capital allowances resulting in lower tax expense by our Group in the earlier years. However, these timing differences will be reversed gradually over the years, whereby there shall be no more capital allowance to be claimed on those newly acquired buses and hence, increase the income tax expense by our Group in thefuture. The “without the incentives” column in notes (2) and (3) below, does not represent the actual results ofthe Group for the FYEs and the FPE. They are provided herewith on hypothetical basis purposes only. The illustrations below are prepared on the assumption that the following incentives were not available to the Group for FYE 2013, FYE 2014, FYE 2015 and the FPE 2016: (a) Sales tax exemption and GST exemption ofCKD bus and air conditioning equipment;
(b) Approved Service Project Status (tax investment allowance);
(c) Governmentgrantfor theconstructionofTerminalAmanJaya;and
(d) 1SBSF

Financial impact on the consolidated statement of profit and loss and other comprehensive income.
Revenue GP PBT Tax income! (expenses)  64,394 15,831 4,276 2,936  61,485 12,787 1,032 (766)  (2,909) (3,044) (3,244) (3,702)  77,578 26,660 13,308 175  75,249 24,062 10,510 (4,135)  (2,329) (2,598) (2,798) (4,310)  PAT  7,212  266  (6,946)  13,483  6,375  7,108

Revenue GP PBT Tax income/ (expenses)  74,123 32,928 19,251 (62)  71,698 30,218 16,341 (6,026)  (2,425) (2,710) (2,910) (5,964)  25,443 10,907 6,711 (1,319)  24,643 9,997 5,735 (1,690)  (800) (910) (976) 371)  PAT  19,189  10,315  8,874  5,391  4,044  1,34

(3) Financial impact on the consolidated statement offinancial position
Total Assets  267.359  263.879  (3.480)  279.262  272.475  (6,787)  Total Equity  127.037  95.561  (31,476)  130.126  97.303  (32.823)  Total  Liahilities  140.322  168.318  27,996  149.136  175,172  26.036  Total Equity  and  Liabilities  267,359  263.879  (3.480)  279.262  272.475  (6,787)

The implementation of these incentives and tax exemptions are part of the Government of Malaysia’s initiatives to improve the standards of public transportation in Malaysia and to encourage the participation of private sectors in these efforts. Further details on these initiatives are shown in Section 5 of this Prospectus under Section 5-Key demand conditions and dependencies -Government initiatives to develop a holistic public transportation system in Malaysia.

(ix) Loss of income from Project Facilitation Fee will materially affect our Group’s financial results

Our Group derives revenue in the form of Project Facilitation Fee. Our Group provides services and rental of our facilities to our potential customers in relation to development of new terminals. Our potential customers are able to visit Terminal AmanJaya to view and understand its’ operations, infrastructure and physical layout and our management personnel would be able to share our experience in the development of Terminal AmanJaya. Kindly refer to Section 4.3.1.3 of this Prospectus for further details of the Project Facilitation Fee arrangements. For the FYE 2014, FYE 2015 and the FPE 2016, our Group recorded revenues ofRM3.80 million. RM9.67 million and RM2.40 million from Project Facilitation Fee which contributed to approximately 4.90%, 13.04% and 9.42% of our Group’s total revenue. Further, the GP arising from the Project Facilitation Fee contributes approximately 8.49%, 24.68% and 16.89% to our Group’s overall GP for FYE 2014, FYE 2015 and the FPE 2016, respectively. Our Group is presently dependent on Maksima Timur as our sole customer for Project Facilitation Fee in the FYE 2014, FYE 2015 and the FPE 2016 respectively. There can be no assurance that our Group will be able to successfully secure additional customers for Project Facilitation in the future in order to mitigate our dependency on Maksima Timur. There is also no assurance that we will be able to continuously secure this income in the future as it is dependent on customers that seeks for Project Facilitation services which we can provide (as set out in Section 4.3.1.3 of this Prospectus) for the proposed development of integrated public transportation terminals. Further, the opportunity for our Group to provide Project Facilitation services is dependent on transport infrastructure development initiatives in existing and new townships (such as the number of new terminals to be built in existing and new townships across Peninsular Malaysia). Therefore, any loss of revenue from Project Facilitation Fee will significantly impact our Group’s financial results.

 

RISKS RELATING TO OUR INDUSTRY 

(i) A&P activities may be susceptible to changes in economic conditions and advertising trends 

Demand for A&P space at our Terminal AmanJaya and the resulting A&P spending by the customers, are particularly sensitive to changes in general economic conditions. For example, A&P expenditures typically decrease during periods of economic downturn as most companies will reduce their A&P spending. As such, customers may reduce the money they spend to advertise or organise promotional events in our Terminal AmanJaya and opt for other cheaper alternative media platforms due to budget constraints. A decrease in demand for advertising media in general and for our A&P services in particular, would materially and adversely affect our ability to generate revenue, and have a material adverse effect on our financial condition and results of operations.

(ii) Competition from other forms of advertising media 

Due to the increasing usage of digital media coupled with the increased affordability of IT devices and hardware, mobile data and broadband access as well as the increasing availability of media content through the online medium, our Group’s conventional A&P services (i.e. via non-digital platforms and organising promotional events) may face competition from digital media advertising and arising therefrom, our A&P income may be adversely affected. Despite the increasing trend of digital media advertising, our Group believes that traditional media advertising, in particular print advertising and promotional events continues to be relevant for advertisers. Digital media advertising may be limited to consumers with access to the internet or with IT hardware and devices. At times, consumers may also be overwhelmed by the array of advertisements which streamed to their devices. Traditional print media advertising however, would be able to attract the attention of the masses via strategic placements on the structure of buildings, such as the Terminal AmanJaya. Our Group endeavours to create more awareness for advertisers to promote Terminal AmanJaya as the preferred location for A&P including improving the image and facade of our Terminal AmanJaya as well as promoting Terminal AmanJaya as a lifestyle hub in order to attract more visitors and in tum more advertisers, which will then contribute to our A&P income. Further, our Group also plans to expand the A&P space at Terminal AmanJaya to include digital platforms with physical digital signage infrastructure as well as new media digital capabilities that can leverage mobile, social and online technologies to drive audience interactivity and engagement.

(iii) Our Group may not be able to source for timely replacement for A&P events in the event of sudden cancellations 

Advertisers are rarely consistent or exclusive with their media choices. They need to be responsive to new product introductions, new markets, new creative campaigns and sales figures. Advertising budgets and plans are also frequently affected by the changes in management or personnel at the advertiser’s company or its representative advertising agencies. A downturn in a company’s business or a shift in strategy will often affect the advertising and marketing budgets first. Our Group’s A&P sales business is vulnerable to this chum and to sudden cancellations that may not be replaceable in the same time frame or at all, hence affecting the A&P income contribution to our Group. Given the very competitive nature of the business, our Group has very little recourse with block advertising cancellations or to demand compensation. However, our Group’s A&P activities only commenced in FYE 2012 following the completion of our Terminal AmanJaya and have not experienced any occurrence of sudden cancellation for our A&P business to date.

(iv) Road accidents and traffic interruptions

Our Group’s business operations consist of the provision of bus services which exposes us to the risk of road accidents or traffic interruptions, where these incidents may cause disruptions to our business operations. There were past incidences over the past three (3) years where our employees and buses have been involved in road accidents (traffic collision with other motorist, pedestrians and driving above the speed limits). Our buses and drivers were compounded for traffic offences and the amount of traffic compounds incurred over the past three (3) years FYE 2013, FYE 2014, FYE 2015 and the FPE 2016 were approximately RM2,000, RM5,000, RM3,250 and RM328 respectively. However there is no material financial impact arising thereofto the Group. As at to date, we have not experienced any past occurrence of traffic interruptions which may significantly disrupt our business operations. To mitigate the possibility of road accidents, our Group ensures that our drivers attend courses focused on road safety. It is mandatory for all new drivers to undertake the internal training provided by our Company. Subsequently, the senior drivers may be assigned to attend external courses. We also undertake regular service and maintenance works on our vehicles to minimise the possibility of accidents caused by faulty vehicles. In addition, we have sufficient insurance coverage for our employees and vehicles to cover any medical and repair expenses in the event of accidents and/or claims by third-party involved in the accident. Notwithstanding that, there can be no assurance that such incidents will not occur in the future and adversely affect the reputation of our Group which may have a material adverse effect on our business operations and financial performance.

(v) Competition from other forms of private and public land transportation models 

We face competition from other forms of public land transportation such as public rail transportation and taxi services. We also face competition from private land transportation, comprising private vehicles. Increased competition from the introduction of rail transportation in Ipoh, Perak may result in loss of market share which could materially affect the financial performance of our Group. In 2014, Perak Transit achieved stage bus passenger ridership market share of 97.8% in Ipoh (Source: IMR Report). However, public bus transportation is differentiated from other public land transportation systems in terms oflocation of operations (i.e. terminal and bus stops), range and frequency of bus routes offered, pricing, and strength of asset base. (Source: IMR Report). We believe our track record, experienced personnel and our service coverage in Ipoh, Perak will help us to remain competitive in the future. As at the LPD, we have a total of 146 public stage buses which operates 27 stage bus routes covering Ipoh and its surrounding areas. However, there can be no assurance that competition from a change in consumer preferences in the modes of public transportation will not have a material adverse impact on the operating results and financial position of our Group.

(vi) Changes in economic and regulatory conditions 

Our business is subject to prevailing economic conditions such as general downturn in the Malaysian economy, inflation and regulatory conditions. Any adverse changes in the above conditions in Malaysia could materially affect our operational and financial prospects. Our income generator for our Tenninal AmanJaya is derived from A&P activities. However, as A&P activities are generally regarded as discretionary expenses by organisations, adverse domestic economic conditions may deter our advertisers from allocating budgets to undertake A&P activities, which in tum may adversely affect our financial results.

Any adverse changes in regulatory conditions and/or policies to the public bus transportation industry which we operate in may also have a bearing on our operations and financial results. From time to time, regulatory authorities such as SPAD may introduce new policies and/or regulations relating to the public bus transportation industry. Our Group may not be able to assimilate the changes into our bus operations in a timely manner which then may affect the efficiencies level of our bus operations. As at to date, we have not experienced instances where we were unable to respond to the changes in timely manner. In the event that we are unable to comply with those regulations, we may run into difficulties and constraints in our business operations. In addition, any changes in or introduction of new regulations that require our compliance may increase our cost of operations. All these will have an effect on our business and financial performance. Our Company will endeavour to the best of our abilities to comply to any changes.

(vii) Dependence on the availability of bus drivers 

Our Group’s bus operations are dependent on the availability of bus drivers. As at the LPD, we have a total of 108 bus drivers employed by us which accounted for approximately 41.22% of our Group’s total workforce. Any substantial shortages in the supply of bus drivers may adversely affect our Group’s bus operation. In this regards, our Group may not be able to operate certain bus routes, resulting in a lower income contribution from bus operations. Therefore, we recognise the importance of motivating and retaining our existing drivers to avoid any shortage of bus drivers which may disrupt our bus operations. Having said this, our Group has not experienced any incidents of shortages ofbus drivers in the past. As part of our effort to retain bus drivers in order to ensure that there are sufficient number of bus drivers for our Group’s daily bus operations, our Group’s effort includes the following:

(i) Offers competitive wages based on industry average and incentives based on experience and performance; and
(ii) Provide a variety ofin-house training and development programmes for bus drivers.

As at the LPD, our Group has provided incentives for the drivers so as to retain the existing drivers and to attract more drivers.

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