Koon Yew Yin - The danger of buying construction contracting company shares
My purpose of writing this article is to share my experience with all investors and contractors.
I know many novice investors would jump in to buy contracting company shares as soon as the company announces it has secured a new big contract. Getting a new contract does not necessarily mean that the company will surely make profit. As you do not have unlimited funds, there is no harry to rush to buy. Until you can see the company announcement of good profit growth, you should keep your money.
From my long experience in the contracting business, I can say that the biggest obstacle for contractors is the open tender system. As you know, unless you can bribe the official, he is duty bound to award the contract to the cheapest tender.
How can any contractor make profit from any contract work with the cheapest price?
My advice to all the contractors is to submit many tenders with high profit margin. It is better to get one with good profit margin than to get many with low margin. If all the contractors follow my advice, they all should get contracts with good profit margin.
From my experience, I always lose money in my 1st contract in constructing a new structure which I have not done before. For example, my company did the Rawang Cement Factory. During pricing for tender submission, I thought I could easily construct those huge cement silos and the 300 feet high chimney. As a result, most of the assumptions I made during tender preparation, did not come true. Eventually I lost money.
I also learned the difficulty in working in a new country. In my 1st contract in Hong Kong, I nearly went bankrupt because all the assumptions I made to achieve the cheapest tender did not come true, everything cost more.
In my first contract work in Australia, the labour union nearly made me commit suicide. It looked like the union only interested to make life easy for their members at the expense of the contractor. For example, workers are not allowed to start work after any rain because the ground is wet and slippery.
Finally, Contractors must not forget that it is better to secure less contracts with higher margin than to secure a lot of contracts with poor margin. Very often, they will lose money on contracts with poor margin. Moreover, they must also realise they have limited financial facility and management capacity. If they have less contracts, they can perform more efficiently and sure of making profit.
Announcement of securing a large contract does not mean the company can make more profit.
Koon Yew Yin - The danger of buying construction contracting company shares
http://koonyewyin.com/2017/02/14/the-danger-of-buying-construction-contracting-company-shares/
