The year under review had been a difficult one but with the rollout of vaccinations to curb the spread of Covid-19, economies are rebounding and opening up their borders. However, variants of Covid-19 may emerge, so many countries while optimistic are still cautious of the lurking danger.
Singapore has followed suit and managed to grow its economy by 3.6 per cent in 2022, according to the Ministry of Trade and Industry's (MTI) announcement on 13 February 2023. But this growth is a drop from the 8.9 per cent figure in 2021.
The positive news is that the Singapore construction industry is finding its way out of the past three difficult years since the Building and Construction Authority removed all sectoral Covid-19 restrictions on 15 March 2022. With the resumption of construction activities, the construction sector posted growth of 6.7 per cent, extending the 20.5 per cent expansion in 2021, backed by both public and private sector construction works.
Amidst the uncertainties impacting the Singapore economy, OKP Holdings Limited (OKP) stays buoyant that it can overcome these adversities and grow with purpose to achieve its vision. Our vision is for the Group to be a leading transport infrastructure and civil engineering company in Singapore, the region and beyond.
Our strategy remains the same – to focus on our core abilities, explore overseas business opportunities, and diversify earnings through property developments and other investments.
As a progressive and nimble company, we form strategic joint ventures to develop properties, tendering for complex projects, and purchasing properties in Singapore and overseas. Our joint ventures to develop properties have yielded good results. Together with our partners, we have completed two residential projects, Amber Skye and LakeLife, in 2017. The Group and a joint venture partner had also won the tender in February 2018 to acquire a land parcel at Chong Kuo Road, Singapore to develop an 84-unit condominium named The Essence, which is now fully sold.
As part of our strategy to explore overseas business opportunities and diversify the Group's earnings, OKP, jointly with HSB Holdings Pte. Ltd., acquired its first overseas property in Perth, Australia in April 2018.
Since its founding, the Group has grown considerably, with its staff strength growing from 10 staff in 1967 to 409 in 2002 and 861 today.
In overcoming various hardships while going through the ups and downs of the business cycle, we have grown to become a well-recognised business in the transport infrastructure and civil engineering industry 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. Through the decades, OKP's reputation has grown due to its solid track record, wide expertise, effective management team, and professional and capable workforce in civil engineering projects.
For the year under review, we have issued two reports – the annual report and a sustainability report. The Group ponders through 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 strategy leads to greater efficiency and better business performance. Since 2011, OKP has published a sustainability report as part of the annual report.
It is now presented as a separate report based on the Stock Exchange (SGX) Sustainability Reporting Guide, the Global Reporting Initiative (GRI) Standards, and the Task Force on Climate-related Financial Disclosures (TCFD).
Although the year has been challenging, we are pleased to report a $27.6 million increase in revenue to $117.6 million during the financial year ended 31 December 2022 (FY2022). This was a jump of 30.7 per cent compared to the $90.0 million revenue in the financial year ended 31 December 2021 (FY2021). The rise was due mainly to a 44.8 per cent rise in revenue from the construction segment to $81.9 million and a 11.6 per cent increase in revenue from the maintenance segment to $29.5 million. These increases were partially offset by a 11.3 per cent dip in rental income.
The increase in revenue from both the construction and maintenance segments was due mainly to the temporary cessation of construction activities in compliance with the government's Covid-19 measures in FY2021 plus the higher percentage of revenue recognised from a number of existing and newly awarded construction and maintenance projects during FY2022.
The decrease in rental income generated from investment properties was attributed largely to the loss from foreign exchange translation of rental income generated from the property at 6-8 Bennett Street, East Perth, Western Australia. This was on account of the revaluation of Australian dollar to Singapore dollar. Rental income from the Group's investment properties at 35 Kreta Ayer Road and 69 and 71 Kampong Bahru Road held steady as recurring income.
The main contributor to OKP's revenue continued to be the construction segment, which accounted for 69.7 per cent (FY2021: 62.8 per cent) of total revenue for the financial year. The maintenance segment accounted for 25.0 per cent (FY2021: 29.3 per cent) while rental income accounted for 5.3 per cent (FY2021: 7.9 per cent) of our total revenue.
Gross profit increased by 59.2 per cent to $10.8 million in FY2022 compared to $6.8 million a year ago. This was attributed to an increase in the gross profit of the construction and maintenance segments to $6.9 million, up from $2.1 million in FY2021. However, the rental income segment showed a drop in gross profit to $3.9 million, down from last year's $4.7 million.
The gross profit margin for the construction and maintenance segments went up to 6.2 per cent for FY2022 compared to 2.5 per cent a year ago. The improvement in the gross profit margin was mainly attributed to the Group's ongoing initiatives to improve cost management, despite the higher material costs and rising manpower costs. Gross profit margin for the rental income segment dipped to 62.6 per cent compared to 67.0 per cent in the previous year.
Other gains declined by 61.6 per cent to $3.0 million for FY2022 from $7.7 million a year ago. The dip was due largely to a drop in receipt of payouts and rebates from the government by $2.1 million, which aimed to provide wage support to employers, as part of the support measures for built environment firms affected by Covid-19; a decrease in fair value gain of $2.1 million arising from the revaluation of some of the investment properties; and an increase of $0.5 million in impairment loss on other receivables.
Administrative expenses increased by 33.3 per cent to $12.4 million, from $9.3 million for FY2021. The increase was largely due to a one-off increase of $3.6 million in legal fees incurred for arbitration proceedings during FY2022, which was partially offset by a drop of $0.5 million in salary costs in FY2022.
The Group's balance sheet stayed healthy. With a healthy cash position of $20.8 million as at 31 December 2022, net tangible assets amounted to $122.0 million, a slight dip from $123.5 million a year ago. This was equivalent to net tangible assets per share of 39.75 Singapore cents, compared to 40.25 Singapore cents per share in the previous year.
To reward shareholders for their support, the Board of Directors has proposed a final cash dividend of $0.007 per share. The proposed dividend represents a dividend yield of 4.5 per cent, based on OKP's closing share price of 0.155 cents on 31 December 2022.
Fortifying Our Strengths And Resilience
The Group's extensive efforts and wide skillsets have been well acknowledged in the industry as it has won numerous awards for its work through the years.
Since FY2022, we managed to secure two more new projects – one construction project and one maintenance project, with aggregate contract value of approximately $196.2 million. The Group completed two maintenance projects, which were handed over to the clients. We continued the execution of 10 ongoing construction projects and five maintenance projects, which have been secured since February 2015. Currently, our net order book stays healthy at $454.1 million, with projects extending till 2026.
On Track For A Brighter Future
With the impact of the Covid-19 pandemic lessening to some extent, the Singapore construction industry is getting up on its feet again with the resumption of projects.
Business expectations for the first half of 2023 are encouraging. According to the Building and Construction Authority's (BCA) Business expectations of the construction sector January 2023 to June 2023 (1H2023) survey, contractors are very optimistic in their business outlook for 1H2023. A weighted 54 per cent of contractors are positive about business conditions in the construction sector while a weighted 9 per cent are pessimistic. Overall, a net weighted balance of 45 per cent of contractors expect business conditions in the construction sector to improve in 1H2023 compared to the period from July to November 2022. The immediateterm business prospects of contractors are much more upbeat compared to the last time they were surveyed in mid-2022, when only a net weighted balance of 14 per cent expected business conditions to improve in 2H2022.
Most segments of contractors expect more favourable business conditions with increasing tender opportunities in 1H2023 except for the A2 and B1 Building and A2/B1/B2 Civil Engineering segments. The less positive sentiment among the A2 and B1 Building and A2/B1/B2 civil engineering segments could be due to their concerns of more intense tendering competition and hike in business costs.
Across all segments, contractors foresee that their profit margins will shrink in 1H2023. Their pessimism might be fuelled by global inflationary pressures driving up business costs. Contractors expect all construction costs to trend up in 1H2023. Of the contractors who foresee that construction tender price will increase in 1H2023, four out of 10 expect the tender price to spike by over 20 per cent. Inflationary expectations towards manpower, however, are kept more in check. Of the contractors who foresee that labour cost will increase in 1H2023, most expect an increase of between 5 per cent and 10 per cent.
Despite these sentiments, all segments except for the B1 Building segment are looking to increase their headcount in 1H2023. Overall, a net weighted balance of 27 per cent of contractors expect to increase hiring in 1H2023. The more optimistic employment outlook among contractors could be a response to more relaxed border restrictions.
This buoyant outlook is reinforced by the BCA's announcement on 12 January 2023, which stated that the total construction demand in 2023 is projected to range between $27 billion and $32 billion, similar to last year's projection. Over the medium-term from 2024 to 2027, BCA expects the total construction demand to reach between $25 billion and $32 billion per year.
Based on the above optimistic expectations and projections for the construction sector, civil engineering construction demand is expected to stay positive. The promising outlook enhances the prospects for transport infrastructure and civil engineering companies such as OKP.
In the case of the property market, the Urban Redevelopment Authority's 4th Quarter 2022 real estate statistics, which were announced on 27 January 2023, revealed that prices of private residential properties increased by 0.4 per cent in 4th Quarter 2022, compared with the 3.8 per cent increase in the previous quarter. For the whole of 2022, prices of private residential properties increased by 8.6 per cent, compared with the 10.6 per cent increase in 2021. These statistics largely reflect the current market conditions after the latest round of property cooling measures was introduced in September 2022. The Group expects the private residential market to remain challenging and will remain discerning in replenishing its land bank.
In the midst of global uncertainties due to economic and political instability, OKP is focused on building a sustainable and resilient business as it is an experienced contractor, especially for public sector projects. To stay ahead of the competition and to be on track for growth, the Group has been widening its expertise and increasing its proficiencies by venturing into property developments locally and overseas.
In 2017, the Group successfully completed two projects – the 109-unit freehold Amber Skye at Amber Road, and the 546-unit executive condominium, LakeLife, at Yuan Ching Road/Tao Ching Road.
Currently, the Group is progressing well with two residential developments, The Essence at Chong Kuo Road and Phoenix Residences at Phoenix Road.
The 99-year leasehold project called The Essence has won three awards – Boutique Condo Interior Design (Winner), Best Boutique Development High Density (Highly Commended) and Best Boutique Condo Architectural Design (Highly Commended) – at Property Guru Asia Property Awards Singapore 2019. It is expected to receive its temporary occupation permit (TOP) in April 2023 and is fully sold.
Phoenix Residences is a 74-unit residential development project with a 99-year leasehold tenure. The project is expected to receive its TOP in July 2024 and is fully sold.
To grow and diversify its business, the Group has also been investing in several properties locally and overseas.
In 2021, three properties in Singapore were acquired for investment. The acquisition of the property at 35 Kreta Ayer Road for $11.3 million was completed in January 2021. It has a freehold tenure and comprises a threestorey with attic shophouse. The other properties are a pair of adjoining two-storey conservation shophouses, 69 and 71 Kampong Bahru Road, acquired in May 2021. The freehold properties were purchased for $12.4 million.
In November 2019, OKP acquired a freehold property located at 32 Tagore Lane in Singapore for $8.0 million. The freehold property comprises a two-storey corner light industrial terrace factory.
The Group has also extended its footprint overseas by purchasing its first overseas property, a freehold office complex in Australia in April 2018. Purchased at A$43.5 million, this property at 6-8 Bennett Street in East Perth, Western Australia is fully occupied by a mix of government and corporate tenants.
According to the Property Council of Australia's Office Market Report released on 2 February 2023, both the Perth Central Business District (CBD) and West Perth office markets had a strong start to 2023. In late 2022, office occupancy rates returned to 80 per cent of pre-Covid levels, which represented a victory for the many stakeholders, who encouraged the recovery of Perth's CBD following the pandemic. The Group is confident that its Australian acquisition will continue to generate revenue.
At OKP, we will continue to focus on the key path in our core civil engineering business, where we have a decadeslong track record and extensive expertise as the preferred civil engineering contractor for various industries.
However, we are also realistic and expect the operating environment in the construction industry to remain challenging, driven by rising costs for manpower, building materials, electricity, and financing. However, construction material costs in Singapore have begun to moderate from the spikes recorded in the first half of 2022.
To address these issues, our organisation will remain vigilant in navigating challenging market conditions and continue to ensure good cashflow management and remain prudent with its capital structure and finances. The Group will continue to raise its productivity through the application of technology in its business processes to reduce reliance on manpower and upskill its workforce.
Backed by a solid track record and industry expertise, OKP will continue to leverage on its capabilities to secure contracts from both the public and private construction sectors. We will also look into new businesses, through acquisitions, joint ventures and/ or strategic alliances, that could complement our construction and maintenance business. These will enable us to step into new markets and gain new clients.
A Note Of Thanks
On behalf of the Board, I would like to express my heartfelt gratitude for the support of our shareholders, clients, business associates and suppliers through the years. I would like to thank and commend the management team for their strong leadership and good teamwork. As we move ahead, I am confident that each of you will give your dedication and very best to make OKP resilient and steadfast so as to achieve a sustainable future.
I would also like to say a big thank you to our Board of Directors for their invaluable guidance and excellent counsel. All of you have contributed your time, efforts and talents to make the Group what it is today – and I am very appreciative of all of you for your staunch support. Working in sync as an agile team, we will keep our organisation strong and steady, fortify our business together as well as perform well with partners.
We believe we are on track to build a resilient and top-notch company and fully realise our vision to be one of the leading transport infrastructure and civil engineering companies in Singapore and the region now and in the future.
Or Kim Peow