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Financial Statements And Related Announcement - First Quarter Results

Financials Archive

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Income Statement

Consolidated Statement of comprehensive income

Balance Sheet

Review of Performance

Our Business

OKP Holdings Limited is a home-grown infrastructure and civil engineering company in the region. We specialise in the construction of urban and arterial roads, expressways, vehicular bridges, flyovers, airport infrastructure and oil & gas related infrastructure for petrochemical plants and oil storage terminals as well as the maintenance of roads and roads-related facilities and building construction-related works. We tender for both public and private civil engineering and infrastructure construction projects. We have expanded our core business to include property development and investment.

We have two core business segments: Construction and Maintenance.

Income Statement Review (First Quarter of 2017 vs First Quarter of 2016)

Revenue

Our Group registered a revenue of $29.7 million in the first quarter ended 31 March 2017 compared to $24.6 million recorded in the first quarter ended 31 March 2016. The increase was due mainly to a 139.5% increase in revenue from the maintenance segment to $9.2 million, partially offset by a marginal 1.0% decrease in revenue from the construction segment to $20.5 million.

The strong growth in revenue from the maintenance segment was due mainly to the higher percentage of revenue recognised from a number of both existing and newly awarded maintenance projects as they progressed to a more active phase in the first quarter ended 31 March 2017.

The decrease in revenue from the construction segment was largely attributable to a lower percentage of revenue recognised from a few construction projects which were reaching completion during the first quarter ended 31 March 2017.

The construction segment continued to be the major contributor to our Group's revenue. On a segmental basis, our core construction segment and maintenance segment accounted for 69.1% (2016: 84.4%) and 30.9% (2016: 15.6%), respectively, of our Group's revenue for the first quarter ended 31 March 2017.

Cost of works

Our cost of works increased by 10.0% or $2.2 million from $21.6 million for the first quarter ended 31 March 2016 to $23.8 million for the first quarter ended 31 March 2017. The increase in cost of works was due mainly to:

  1. an increase in labour costs due to the hiring of new middle management staff to support the existing projects in the first quarter ended 31 March 2017;

  2. an increase in sub-contracting costs which were mainly costs incurred for specialised works such as bored piling, asphalt works, mechanical and electrical works, soil-testing, landscaping and metalworks which are usually subcontracted to external parties, during the first quarter ended 31 March 2017; and

  3. an increase in preliminary costs and overheads such as professional fees, depreciation of property, plant and machinery, hiring costs and transportation costs during the first quarter ended 31 March 2017. The professional fees related to the engagement of consultants to design the construction methods of our on-going projects. Hiring and transportation costs related to the rental of additional heavy equipment and machineries to support existing projects during the first quarter ended 31 March 2017.

Gross profit and gross profit margin

Consequently, our gross profit for the first quarter ended 31 March 2017 increased by 100.7% or $2.9 million from $3.0 million for the first quarter ended 31 March 2016 to $5.9 million for the first quarter ended 31 March 2017.

Our gross profit margin improved from 12.1% for the first quarter ended 31 March 2016 to 20.0% for the first quarter ended 31 March 2017.

The higher gross profit margin was largely attributable to a few construction projects which had commanded better gross profit during the first quarter ended 31 March 2017.

Other income

Other income decreased by $0.8 million or 83.3% from $1.0 million for the first quarter ended 31 March 2016 to $0.2 million for the first quarter ended 31 March 2017. The decrease was largely attributable to:

  1. a technical management consultancy fee of $0.6 million received in relation to a piling project in Jakarta, Indonesia during the first quarter ended 31 March 2016, which did not recur in the first quarter ended 31 March 2017; and

  2. a decrease in government grants of $0.3 million received which comprised wage credit payouts received from the Inland Revenue Authority of Singapore and incentives received from the Building and Construction Authority's Construction Engineering Capability Development Programme (CED Programme),

  3. which were partially offset by:

  4. an increase in interest income received due to higher interest earned from higher bank deposits during the first quarter ended 31 March 2017.

Administrative expenses

Administrative expenses increased by $0.3 million or 14.8% from $2.2 million for the first quarter ended 31 March 2016 to $2.5 million for the first quarter ended 31 March 2017. The increase was largely attributable to higher directors' remuneration (including profit sharing) accrued as a result of the higher profit generated by the Group for the first quarter ended 31 March 2017.

Finance expenses

Finance expenses remained relatively constant at $20,000 and $16,000 in the first quarter ended 31 March 2017 and 31 March 2016 respectively.

Share of profit of associated companies and joint ventures

  1. Share of profit of joint ventures
    The share of profit of joint ventures increased by $1.6 million due mainly to:

    1. the recognition of profit of $1.6 million from Lakehomes Pte. Ltd., the developer for the LakeLife Executive Condominium, based on the recognition of profits from units of the development which were ready for handover during the first quarter ended 31 March 2017; and

    2. the recognition of profit of $46,000 for a construction project undertaken by Chye Joo – Or Kim Peow JV during the first quarter ended 31 March 2017.


  2. Share of profit of associated companies
    The $0.3 million increase in the share of profit of associated companies in the first quarter ended 31 March 2017 was due mainly to our associated company, United Singapore Builders Pte Ltd, recognising further profits for a construction project secured during the first quarter ended 31 March 2017.

Profit before income tax

Profit before income tax increased by $3.7 million or 195.5% from $1.8 million in the first quarter ended 31 March 2016 to $5.5 million in the first quarter ended 31 March 2017. The increase was due mainly to (1) the increase in gross profit of $2.9 million and (2) the increase in share of profit of associated companies and joint ventures of $1.9 million. The increase was partially offset by (1) the increase in administrative expenses of $0.3 million and (2) the decrease in other income of $0.8 million, as explained above.

Income tax expense

Income tax expense increased by $0.5 million or 3,013.3% from $15,000 in the first quarter ended 31 March 2016 to $0.5 million in the first quarter ended 31 March 2017.

The effective tax rate for the first quarter ended 31 March 2017 was 8.5%, which was lower than the statutory tax rate of 17.0%, due mainly to (1) the profit before income tax of $5.5 million which comprised share of profit of associated companies and joint ventures of $2.0 million, which was already taxed at the associated company and joint venture levels, (2) statutory stepped income tax exemption and (3) a tax rebate of 20% on the corporate tax payable.

The effective tax rate for the first quarter ended 31 March 2016 was 0.8%, which was lower than the statutory tax rate of 17.0%, due mainly to (1) enhanced tax deductions under the Productivity and Innovation Credit Scheme, (2) statutory stepped income tax exemption, (3) a tax rebate of 50% on the corporate tax payable and (4) a reversal of deferred tax of $0.1 million made during the first quarter ended 31 March 2016.

Net profit

Overall, for the first quarter ended 31 March 2017, net profit increased by $3.2 million or 172.7%, from $1.9 million for the first quarter ended 31 March 2016 to $5.1 million for the first quarter ended 31 March 2017, following the increase in profit before income tax of $3.7 million which was partially offset by the increase in income tax expense of $0.5 million, as explained above.

Our net profit margin improved from 7.5% for the first quarter ended 31 March 2016 to 17.0% for the first quarter ended 31 March 2017.

Commentary

Economic outlook

According to the Ministry of Trade and Industry (“MTI”) advance estimates, Singapore's economy expanded by 2.5% during the first quarter of 2017 on a year-on-year (“y-o-y”) basis, easing from the 2.9% growth in the immediate preceding quarter.

Industry outlook

The construction sector contracted by 1.1% in the first quarter on a y-o-y basis, extending the 2.8% decline in the previous quarter, mainly due to a slowdown in private sector construction activities. On a quarter-on-quarter seasonally adjusted annualised basis, the sector grew by 5.4%, accelerating from the 0.8% growth in the preceding quarter.

For 2017, the Building and Construction Authority projected the total construction demand or the value of construction contracts to be awarded this year to reach between $28.0 billion and $35.0 billion. This is higher than the preliminary estimate of $26.1 billion that was previously forecasted.

Out of this, 70% of projects will be from the public sector, boosted by an increase in demand for most building types and civil engineering works. In the public sector construction segment, demand is expected to surge from about $15.8 billion last year to between $20.0 billion and $24.0 billion this year. Over the medium to long term, the average construction demand is projected to be between $26.0 billion and $37.0 billion per annum in 2020 and 2021. In the public sector construction segment, demand is expected to be between $18.0 billion and $23.0 billion per annum from 2018 to 2021.

Other major infrastructure projects, including the North-South Corridor, Circle Line 6, Jurong Regional Line and Changi Airport Terminal 5, continue to underpin demand. In addition, the Government will also be bringing forward $700.0 million worth of public sector infrastructure projects to start construction in 2017 and 2018. These include building projects such as the upgrading of community clubs and sports facilities.

Company outlook and order book update

Overall, the industry will continue to experience headwinds due to rising business costs including labour costs as well as a shortage of experienced manpower. As a key player in the public sector arena, we remain optimistic as we are well positioned to capture opportunities from the Singapore Government's announcement of a strong pipeline of projects being brought forward to 2017. We will actively pursue new projects while delivering on our order book.

As at 31 March 2017, our net construction order book remains robust, with $306.1 million (31 March 2016: $322.1 million) of secured contracts, extending till 2019.

On the property development and investment front, we have a 10% minority investment in CS Amber Development Pte. Ltd., the developer of our first residential property project – Amber Skye – and a subsidiary corporation of CS Land Pte. Ltd.. Amber Skye obtained the Temporary Occupation Permit on 27 April 2017. Efforts in marketing the remaining units of the 109-unit freehold development will continue.

In addition, we also hold a 10% stake in Lakehomes Pte. Ltd. - a property development joint venture - which launched the LakeLife Executive Condominium (“EC”) located in Jurong. LakeLife EC obtained the Temporary Occupation Permit on 30 December 2016 and an additional 188 units had been handed over to buyers during the first quarter ended 31 March 2017.

The Group will continue to pursue growth and investment opportunities locally and abroad to strengthen our income streams, while delivering results in the civil engineering and infrastructure sector where our core business lies.