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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

Note:
(*) Amount is less than $1,000.

n.m. – not meaningful

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 and gas-related infrastructure for petrochemical plants and oil storage terminals as well as the maintenance of roads and road-related facilities and building constructionrelated 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 three core business segments: Construction, Maintenance and Rental income from investment properties.

Income Statement Review (First Quarter of 2019 vs First Quarter of 2018)

Revenue

Our Group registered a revenue of $19.2 million in the first quarter ended 31 March 2019 compared to $23.0 million recorded in the first quarter ended 31 March 2018. The decrease was due mainly to (i) a 45.0% decrease in revenue from the maintenance segment to $5.4 million and (ii) a 5.4% decrease in revenue from the construction segment to $12.4 million, partially offset by a 1,541.7% increase in rental income.

The decrease in revenue from the construction segment was largely attributable to (1) a lower percentage of revenue recognised from a few construction projects which were reaching completion and (2) a lower percentage of revenue recognised from a few newly-awarded construction projects during the first quarter ended 31 March 2019.

The decrease in revenue from the maintenance segment was largely attributable to a lower percentage of revenue recognised from a few newly-awarded maintenance projects during the first quarter ended 31 March 2019.

The increase in rental income generated from investment properties was due 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%.

Both the construction and maintenance segments are the major contributors to our Group’s revenue. On a segmental basis, construction, maintenance and rental income accounted for 64.5% (31 March 2018: 56.8%), 28.3% (31 March 2018: 42.9%) and 7.2% (31 March 2018: 0.3%) of our Group’s revenue respectively for the first quarter ended 31 March 2019.

Cost of sales

Our cost of sales decreased by 11.2% or $1.9 million from $17.4 million for the first quarter ended 31 March 2018 to $15.5 million for the first quarter ended 31 March 2019. The decrease in cost of sales was due mainly to the decrease in subcontracting 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 sub-contracted to external parties.

Gross profit and gross profit margin

Consequently, our gross profit for the first quarter ended 31 March 2019 decreased by 34.1% or $1.9 million from $5.6 million for the first quarter ended 31 March 2018 to $3.7 million for the first quarter ended 31 March 2019.

Our gross profit margin decreased from 24.4% for the first quarter ended 31 March 2018 to 19.4% for the first quarter ended 31 March 2019.

The lower gross profit margin was due largely to lower profit margins for new and some current projects as a result of a more competitive pricing environment and rising manpower costs during the first quarter ended 31 March 2019.

Other gains, net

Other gains (net) increased by $0.5 million or 365.1% from $0.1 million for the first quarter ended 31 March 2018 to $0.6 million for the first quarter ended 31 March 2019. The increase was largely attributable to gain from foreign exchange resulting mainly from the strengthening of the Australian dollar against the Singapore dollar during the first quarter ended 31 March 2019.

Administrative expenses

Administrative expenses decreased by $0.3 million or 13.9% from $2.4 million for the first quarter ended 31 March 2018 to $2.1 million for the first quarter ended 31 March 2019. The decrease was largely due to lower directors’ remuneration (including profit sharing) accrued as a result of the lower profit generated by the Group for the first quarter ended 31 March 2019.

Finance expenses

Finance expenses increased by $0.3 million or 1,348.0% from $25,000 for the first quarter ended 31 March 2018 to $0.4 million for the first quarter ended 31 March 2019. The increase was due to interest expenses of $0.3 million incurred on a bank term loan for the purchase of an investment property at 6-8 Bennett Street, East Perth, Western Australia.

Share of losses of associated companies and joint ventures

The share of loss of associated companies was due mainly to losses incurred by the Group’s 22.5% held associated company, Chong Kuo Development Pte Ltd, and the Group’s 25% held associated company, USB Holdings Pte Ltd, during the first quarter ended 31 March 2019.

Profit before income tax

Profit before income tax decreased by $2.0 million or 60.4% from $3.3 million in the first quarter ended 31 March 2018 to $1.3 million in the first quarter ended 31 March 2019. The decrease was due mainly to (1) the decrease in gross profit of $1.9 million, (2) the increase in share of losses of associated companies and joint ventures of $0.6 million and (3) the increase in finance expenses of $0.3 million. The decrease was partially offset by (1) the decrease in administrative expenses of $0.3 million and (2) the increase in other gains of $0.5 million, as explained above.

Income tax expense

Income tax expense decreased by $0.4 million or 76.6% from $0.5 million in the first quarter ended 31 March 2018 to $0.1 million in the first quarter ended 31 March 2019.

The effective tax rate for the first quarter ended 31 March 2019 was 9.3%, which was lower than the statutory tax rate of 17.0%, due mainly to an overprovision of deferred tax amounting to $0.1 million.

The effective tax rate for the first quarter ended 31 March 2018 was 15.8%, which was lower than the statutory tax rate of 17.0%, due mainly to (1) statutory stepped income tax exemption and (2) a tax rebate of 40% on the corporate tax payable.

Non-controlling interests

Non-controlling interests of $0.1 million was due to profits from our subsidiary corporation, Raffles Prestige Capital Pte Ltd, in the first quarter ended 31 March 2019.

Net profit

Overall, net profit decreased by $1.6 million or 57.4%, from $2.8 million for the first quarter ended 31 March 2018 to $1.2 million for the first quarter ended 31 March 2019, following the decrease in profit before income tax of $2.0 million which was partially offset by the decrease in income tax expense of $0.4 million, as explained above.

Our net profit margin decreased from 12.3% for the first quarter ended 31 March 2018 to 6.3% for the first quarter ended 31 March 2019.

Commentary

Economic Outlook

According to the advance estimates from Ministry of Trade and Industry (“MTI”), Singapore’s economy grew by 1.3% on a year-on-year (“y-o-y”) basis in the first quarter of 2019, moderating from the 1.9% growth in the fourth quarter of last year. On a quarter-on-quarter (“q-o-q”) seasonally-adjusted annualised basis, the economy expanded by 2.0%, faster than the 1.4% growth in the previous quarter.

Industry Outlook

On the construction front, the sector grew by 1.4% on a y-o-y basis in the first quarter of 2019, representing a turnaround from the 1.0% decline in the previous quarter. This also marked the first quarter of positive growth following 10 consecutive quarters of decline. The sector’s recovery was boosted by an improvement in private sector construction activities. On a q-o-q seasonally-adjusted annualised basis, the construction sector recorded a 7.8% growth, extending the 5.1% expansion in the previous quarter.

The Building and Construction Authority (“BCA”) projected the total value of construction contracts to be awarded in 2019 to reach between $27.0 billion and $32.0 billion, with 60.0% of the projects coming from the public sector, amounting to between $16.5 billion and $19.5 billion. Public sector construction demand is mainly supported by major infrastructure and pipeline industrial building projects. These projects include big infrastructure projects such as the Cross-Island Line, developments at Jurong Lake District and Changi Airport Terminal 5.

The construction demand for private sector is expected to remain steady at between $10.5 billion and $12.5 billion in 2019, supported by projects including the redevelopment of past en-bloc sales sites concluded prior to the second half of 2018 and new industrial developments.

Over the medium term, BCA anticipates steady improvement in the construction demand, with a projection of between $27.0 billion and $34.0 billion per year for the period of 2020 to 2021 and between $28.0 billion and $35.0 billion annually for the period of 2022 to 2023.

With respect to the private residential property segment, the Urban Redevelopment Authority’s (“URA”) 1Q2019 flash estimates reflected a 0.6% decrease in private residential property prices compared to the 0.1% decrease in the previous quarter.

Company Outlook And Order Book Update

Looking ahead, the Group remains cautiously optimistic of industry prospects, as it remains supported by a healthy pipeline of construction projects in the near-to-medium term. The Group’s order book stands at $291.6 million, with visibility extending to 2023.

On the property development front, the Group has successfully launched The Essence, a 84-unit condominium along Chong Kuo Road in March 2019.

The 74-unit residential project Phoenix Heights in Bukit Panjang is also on track, having received the necessary regulatory approvals from the Singapore Land Authority for development and the grant of a fresh 99-year lease extension.

The Group’s overseas property at 6-8 Bennett Street in Perth, Australia continues to contribute significant rental income in the first quarter of FY2019.

Moving forward, the Group will continue to sharpen its competitive edge in its core civil engineering business whilst improving productivity and efficiency. The Group will also remain focused on the smooth execution and delivery of its existing projects. At the same time, the Group will keep a look out for appropriate opportunities to broaden its foothold in property development and investment through strategic tie-ups with experienced partners, both locally and abroad.