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Chairman's Statement

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(Extracted from Annual Report 2018)

Chairman

Dear Shareholders,

It has been a challenging time for the year under review, as the global economic outlook remains cloudy with current anti-globalisation and protectionist sentiments, trade wars and financial market instability. These economic turmoil plus political upheavals will continue to adversely affect business operations worldwide including those in Singapore.

According to the Ministry of Trade and Industry's statistics announced on 15 February 2019, the Singapore economy grew by 3.2 per cent in 2018, a decrease from the 3.9 per cent growth in 2017. The construction industry fared slightly better, dropping by only 3.4 per cent in 2018 compared to the 10.2 per cent decrease in the previous year. A fall in public sector construction works contributed to the drop, although private sector construction works grew marginally.

Despite the obstacles faced in the construction industry, OKP Holdings Limited (OKP) remains buoyant and confident that the Group can overcome these setbacks by remaining focused on its vision to be a leading transport infrastructure and civil engineering company in Singapore, the region and beyond. Our vision will continue to be our motivation in directing the company ahead as we seek to overcome challenging times and build our resilience as a company with a bright and sustainable future.

The Group is committed to executing its strategy, which is to focus on its core competencies, widening its presence in the oil and gas sector, exploring overseas business opportunities, and diversifying earnings through property development and other investments. We believe that this strategy will enable us to achieve continuous business growth and advance our competitiveness.

At OKP, we seek to maintain our leadership position in our core business of construction and maintenance in the public sector, while gradually developing our private sector business.

We have positioned ourselves as a forward-thinking and adaptable company by broadening our skillsets and expertise through forming joint ventures to develop properties and bid for complex projects. Our joint ventures to develop properties have borne much fruit. The Group and its joint venture partners continue to be involved in developing and acquiring property projects in Singapore and overseas. We have has completed two residential projects, Amber Skye and LakeLife in 2018. In addition, OKP and Lian Soon Holdings Pte Ltd had won the bid in February 2018 to acquire a land parcel at Chong Kuo Road, Singapore and launched a 84- unit condominium project named The Essence on this site in March 2019.

As part of our strategy to explore overseas business opportunities and diversify the Group's earnings, OKP, together with HSB Holdings Pte. Ltd., expanded its footprint overseas by acquiring its first overseas property, a freehold office complex in Perth, Australia in April 2018.

Since its founding, the company has grown considerably with its employee strength growing from 10 employees in 1967 to 409 in 2002 and 695 today.

In overcoming numerous challenges while undergoing the ups and downs of the business cycle, we have matured to become a stable and steadfast business in the transport infrastructure and civil engineering business in Singapore and the region. The Group continues to be inspired by its mission -- to be the first and preferred civil engineering contractor for the various industries, here and overseas. We will continue to drive ourselves forward in achieving this mission by gradually expanding our knowledge, abilities and outreach in order to move ahead of our competitors. Through the decades, OKP's reputation has increased due to its numerous advantages, which have strengthened its leadership position in the construction industry. These advantages include our solid track record, well-known expertise, proficient management team, and experienced and able workforce in civil and engineering projects.

The Group considers seriously sustainability issues in the formulation of its strategies. We believe that sustainability means operating our business in a way that is not only profitable but also makes a positive impact on our stakeholders and the environment. We believe this is a strategic direction which leads to better management, greater efficiency and sound business performance. Since 2010, OKP has published a sustainability report and for the fourth year running, the Group is presenting a sustainability report based on the SGX Sustainability Reporting Guide and the Global Reporting Initative (GRI) Standards.

Performance Review

The past financial year was a challenging time for the Group as it continues to seek to build a more resilient company with a steadfast and sustainable future. It saw revenue of $90.4 million during the financial year ended 31 December 20187 (FY2018), which was a drop of 23.0 per cent compared to $117.5 million in the previous year (FY2017).

The decrease was attributed mainly to a 41.3 per cent decline in revenue from the construction segment to $46.0 million. However, this decrease was offset by a 3.9 per cent rise in revenue from the maintenance segment to $40.4 million, and a 1,609.7 per cent increase in rental income.

The main contributor to the Group's revenue continued to be the construction segment, which accounted for 50.9 per cent (2017: 66.7 per cent) of total revenue for the financial year. The maintenance segment accounted for 44.6 per cent (2017: 33.1 per cent) of OKP's overall revenue.

The increase in the maintenance segment's revenue was largely driven by the higher percentage of revenue recognised from a few major maintenance projects, which were in full swing in FY2018. In the case of the construction segment, the decline in revenue was mainly due to a lower percentage of revenue recognised from a few construction projects, which were reaching completion; a lower percentage of revenue recognised from a few newly-awarded construction projects; and no revenue from a construction project at the Pan-Island Expressway exit to Tampines Expressway following the mutual termination of the project, during FY2018.

One bright spot is the increase in rental income from investment properties, which was attributed mainly to rental income generated from the newly purchased property at 6-8 Bennett Street, East Perth, Western Australia based on the current occupancy rate of approximately 68.0 per cent. Rental income accounted for 4.5 per cent (FY2017: 0.2 per cent) of our Group's revenue.

Gross profit decreased by 20.3 per cent to $17.4 million for FY2018 from $21.9 million a year ago. However, gross profit margin improved slightly to 19.2 per cent compared to 18.6 per cent for the previous year.The slight improvement in the gross profit margin was mainly due to the completion of a few maintenance projects, which had commanded better gross profit.

The lower revenue and gross profit, together with increased other losses of $2.3 million, plus a $2.6 million drop in contribution from the share of profit of associated companies and joint ventures, had an impact on the Group's FY2018 bottom-line. Other losses went up due to a $1.7 million increase in fair value loss from the revaluation of some investment properties, as well as a higher foreign exchange loss of $0.6 million. The joint ventures' lower share of profit was mainly due to a $1.8 million decrease in share of profit from Lakehomes Pte Ltd, the developer of LakeLife executive condominium; as there were only a few remaining units, which were handed over during FY2018.

On the other hand, other income increased by $1.1 million or 110.2 per cent to $2.1 million. This increase was largely due to a rise in government grants of $0.3 million, interest received from a loan to a joint venture of $0.5 million; a gain on disposal of property, plant and equipment of $0.1 million; plus an increase in interest income of $0.2 million due to higher interest earned from bank deposits. Correspondingly, basic earnings per share decreased by 49.0 per cent to 2.10 Singapore cents, from 4.12 Singapore cents achieved a year ago.

The Group's balance sheet remained sound. With a healthy cash position $69.2 million as at 31 December 2018, its net tangible assets was $121.8 million, up from $120.8 million a year ago. This was equivalent to net tangible assets per share of 39.5 Singapore cents, compared to 39.2 Singapore cents per share in the previous year.

In appreciation of the loyal support from OKP's shareholders, the Board of Directors has proposed a total dividend of 1.0 Singapore cents per share, comprising a final dividend of 0.7 Singapore cent per share and a special dividend of 0.3 Singapore cent per share. The total dividend of 1.0 cents per share represent a dividend yield of 5.0 per cent and a dividend payout ratio of 47.6 per cent for FY2018, based on OKP's closing share price of 20 cents on 31 December 2018.

Staying Resilient And Stronger

The Group's hard work and competent skillsets have been well acknowledged in the industry as the company has won many awards for its work through the years.

During the year under review, we continued to stay resilient and strong as a company by winning a total of six projects - four construction projects and two maintenance projects. A third maintenance project was clinched after 31 December 2018. The Group has completed two construction projects and four maintenance projects, which were handed over successfully to the clients. We continued the execution of eight ongoing construction projects and three maintenance projects, which had been secured since February 2015.

Currently, our net order book stays healthy at $265.8 million, with projects extending till 2023.

Looking Optimistically Towards The Future

In the foreseeable future, the Singapore construction industry maintains an optimistic vibe with a steady pipeline of construction work.

The Building and Construction Authority (BCA) gave some positive estimates for the industry. It announced on 14 January 2019 that the value of construction contracts to be awarded in 2019 will range between $27.0 billion and $32.0 billion, comparable to the estimated $30.05 billion worth of contracts awarded in 2018.

About 60 per cent of the contracts will be driven by the public sector, due to an anticipated increase in demand from major infrastructure projects and a pipeline of major industrial building projects. Public sector construction demand is expected to grow to between $16.5 billion and $19.5 billion in 2019, slightly up compared to between $16.0 billion and $19.0 billion a year ago.

In the case of the private sector, construction demand is expected to remain strong at between $10.5 billion and $12.5 billion in 2019. The demand will come from the redevelopment of past en bloc sales sites completed before the second half of 2018, and new industrial developments.

Looking ahead over the medium term from 2020 to 2021, construction demand is projected to reach between $27.0 billion and $34.0 billion per year. This projected demand could increase to between $28.0 billion and $35.0 billion per year for 2022 and 2023. Public sector contribution from 2020 to 2023 is expected to be between $16.0 billion and $20.0 billion per year, with similar proportions of demand coming from both building projects and civil engineering works. These construction works will include public residential developments, big infrastructure projects such as the Cross Island Line, developments at Jurong Lake District and Changi Airport Terminal 5.

Taking into account the above encouraging projections, civil engineering construction demand is expected to remain upbeat beyond 2019. Indeed, this promising outlook enhances the prospects for infrastructure transport and civil engineering companies such as the Group.

Although the construction industry is very competitive, OKP is confident of winning more sustainable business as the Group is an experienced performer, especially for public sector projects. The BCA's projections of higher construction demand particularly from the public sector and for civil engineering works in 2019 is positive news for OKP. This is because the company has a good standing in the public sector, and will continue to do its best to win contracts from both the private and public sector in the coming year.

To stay ahead of the tough competition, the Group has been widening its expertise and strengthening its capabilities by undertaking new and related areas of business and extending its presence overseas. This includes exploring property developments locally and overseas.

According to the Urban Redevelopment Authority's 4th Quarter 2018 real estate statistics, which were announced on 25 January 2019, the property market showed some uptake in home prices. For 2018, the residential development market registered a rise in private home prices by 7.9 per cent, up from the 1.1 per cent increase in the previous year. After the property market cooling measures introduced in July 2018, the property segment's growth had dropped moderately, as private home prices went down by 0.1 per cent in the fourth quarter of 2018, as compared to the 0.5 per cent increase in the previous quarter.

In recent years, OKP has completed two property projects. The first project is at the 109-unit freehold Amber Skye at Amber Road, which was launched in September 2014, with remaining units handed over to buyers in FY2018. The second development is a 546-unit executive condominium, LakeLife at Yuan Ching Road/Tao Ching Road, which has sold all its units and handed over to owners at end of last year.

Currently, the Group is involved in two new projects. Together with Lian Soon Holdings Pte Ltd, OKP has won the bid in February 2018 to acquire a land parcel at Kuo Ching Road for $43.9 million. The Group has launched a 84-unit condominium named The Essence on this 99-year leasehold site in March 2019. The second new development project was acquired through a successful tender by the Group's 25 per cent-owned associated company, USB Holdings Pte. Ltd. at 71-85 Phoenix Avenue, Phoenix Heights, Singapore. We have received the necessary regulatory approvals including the grant of a fresh 99-year lease and will focus on the smooth execution for the launch of this 79-unit residential project at Phoenix Heights in Bukit Panjang.

As part of our strategy to explore overseas business opportunities, diversify our earnings and build recurrent income, the company, together with HSB Holdings Pte. Ltd., expanded its footprint overseas by acquiring its first overseas property, a freehold office complex in Perth, Australia for A$43.5 million in April 2018. We feel optimistic about this overseas acquisition as market sentiments points to the Perth office market seeing significant net effective rental growth over the next few years.

This property at 6-8 Bennett Street in Perth has contributed significant rental income for the fourth quarter of FY2018 and we look forward to seeing continuing contribution of this asset to our income. Our plan is to look for strategic opportunities to strengthen our property development and investment portfolio in Singapore and regionally.

Of course, the Group's focus will continue to be on its core civil engineering business, where it has a decades-long track record and vast expertise as the preferred civil engineering contractor for various industries, locally and overseas. Nevertheless, we are also pragmatic and expect the operating environment in the construction industry to stay challenging. This is due to increasing business costs, a tough labour market, and shortage of experienced and skilled manpower, as a consequence of the prevailing government policies and legislation involving foreign workers' employment.

To tackle these issues, OKP has updated its operations and productivity via various measures. These include the adoption of advanced technologies and conducting training programmes.

We will continue to bid for new projects, both locally and overseas and explore new businesses, through acquisitions, joint ventures and/ or strategic alliances, that could complement our construction and maintenance business. These will enable us to move into new markets and acquire new potential clients.

A Note Of Thanks

On behalf of the Board, I would like to say a big thank you for the unwavering and loyal support of our shareholders, clients, business associates and suppliers through the years. I would like to convey my profound gratitude to the management team for their excellent leadership, collaborative efforts and strong team work. As we look to the future,I am confident that I can depend on all of you to give your very best to make OKP resilient and stronger in order achieve a sustainable future.

I would also like to express my deepest appreciation to our Board of Directors for their wise counsel and invaluable contributions. All of you have given generously of your time, hard work and investments to make OKP what it is today and I am indebted to all of you for this unstinting support.

I am confident that with all the collaborative efforts and dedication together as a team, we can build a resilient and better company and achieve our vision to be one of the leading infrastructure and civil engineering companies in Singapore and the region now and in the future.

Chairman

Or Kim Peow
Group Chairman