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(*) Amount is less than $1,000.
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(*): The Group has applied the new Singapore Financial Reporting Standards (International) (“SFR(I)”) framework for the financial year ending 31 December 2018 and has applied SFRS(I) with 1 January 2017 as the date of transition, which requires the first SFRS(I) financial statements to include an opening SFRS(I) statement of financial position at the date of transition to SFRS(I)s.
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 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 two core business segments: Construction and Maintenance.
Income Statement Review (First Quarter of 2018 vs First Quarter of 2017)
Our Group registered a revenue of $23.0 million in the first quarter ended 31 March 2018 compared to $29.7 million recorded in the first quarter ended 31 March 2017. The decrease was due mainly to a 36.3% decrease in revenue from the construction segment to $13.1 million, partially offset by a 7.6% increase in revenue from the maintenance segment to $9.9 million.
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 2018, as well as the reduced revenue generated from a construction project at the Pan-Island Expressway exit to Tampines Expressway.
The increase 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 2018.
On a segmental basis, our core construction segment and maintenance segment accounted for 57.0% (31 March 2017: 69.1%) and 43.0% (31 March 2017: 30.9%), respectively, of our Group's revenue for the first quarter ended 31 March 2018.
Cost of works
Our cost of works decreased by 26.8% or $6.4 million from $23.8 million for the first quarter ended 31 March 2017 to $17.4 million for the first quarter ended 31 March 2018. The decrease in cost of works was due mainly to:
Gross profit and gross profit margin
Our gross profit for the first quarter ended 31 March 2017 decreased by 6.5% or $0.3 million from $5.9 million for the first quarter ended 31 March 2017 to $5.6 million for the first quarter ended 31 March 2018.
However, our gross profit margin increased from 20.0% for the first quarter ended 31 March 2017 to 24.2% for the first quarter ended 31 March 2018.
The higher gross profit margin was largely attributable to a few maintenance projects which had commanded better gross profit during the first quarter ended 31 March 2018.
Other income increased by $0.3 million or 121.5% from $0.3 million for the first quarter ended 31 March 2017 to $0.6 million for the first quarter ended 31 March 2018. The increase was largely attributable to:
The increase in other losses of $0.3 million was due mainly to loss in foreign exchange resulting from the weakening of the US dollar and Australian dollar against the Singapore dollar in the first quarter ended 31 March 2018.
Administrative expenses decreased by $0.1 million or 3.8% from $2.5 million for the first quarter ended 31 March 2017 to $2.4 million for the first quarter ended 31 March 2018. 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 2018.
Finance expenses increased by $5,000 from $20,000 for the first quarter ended 31 March 2017 to $25,000 for the first quarter ended 31 March 2018. The increase was due to the interest from lease liabilities of $6,000 as the result of implementation of SFRS(I) 16.
Share of profit of associated companies and joint ventures
Profit before income tax
Profit before income tax decreased by $2.1 million or 39.2% from $5.5 million in the first quarter ended 31 March 2017 to $3.4 million in the first quarter ended 31 March 2018. The decrease was due mainly to (1) the decrease in gross profit of $0.3 million, (2) the increase in other losses of $0.3 million and (3) the decrease in share of profit of associated companies and joint ventures of $1.9 million. The decrease was partially offset by (1) the decrease in administrative expenses of $0.1 million and (2) the increase in other income of $0.3 million, as explained above.
Income tax expense
Income tax expense increased by $0.1 million or 13.5% from $0.4 million in the first quarter ended 31 March 2017 to $0.5 million in the first quarter ended 31 March 2018.
The effective tax rate for the first quarter ended 31 March 2018 was 15.7%, 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.
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.
Overall, for the first quarter ended 31 March 2018, net profit decreased by $2.2 million or 44.0%, from $5.1 million for the first quarter ended 31 March 2017 to $2.8 million for the first quarter ended 31 March 2018, following the decrease in profit before income tax of $2.1 million, coupled with the increase in income tax expense of $0.1 million, as explained above.
Our net profit margin decreased from 17.0% for the first quarter ended 31 March 2017 to 12.3% for the first quarter ended 31 March 2018.
According to the Ministry of Trade and Industry (“MTI”) advance estimates, Singapore's economy expanded by 4.3% on a year-on-year (“y-o-y”) basis in the first quarter of 2018, which is higher than the 3.6% growth in the fourth quarter of last year.
The construction sector contracted by 4.4% on a y-o-y basis in the first quarter, following the 5.0% decline in the previous quarter. The weak performance of the sector was due to a fall in both private sector and public sector construction activities. On a quarter-onquarter seasonally adjusted annualised basis, the sector grew by 4.1%, a reversal from the 0.2% contraction in the preceding quarter.
The Building and Construction Authority (“BCA”) projected the total value of construction contracts to be awarded in 2018 to reach between $26.0 billion and $31.0 billion, with 60% of the projects coming from the public sector, amounting to between $16.0 billion and $19.0 billion. These public projects will include major contracts for infrastructure projects such as the North-South Corridor, new MRT works and Deep Tunnel Sewerage System Phase 2 as well as rolling out of the remaining package for Runway 3 by Changi Airport Group.
Over the medium term, BCA anticipates a steady improvement in construction demand, with the public sector continuing to lead the demand. Construction demand is projected to be between $26.0 billion and $33.0 billion per year for the period 2019 to 2020, and could pick up to between $28.0 billion and $35.0 billion annually for the period 2021 to 2022.
With respect to the private residential property segment, Urban Redevelopment Authority's (“URA”) first quarter of 2018 flash estimates reflected an increase of 3.1% in private residential property prices, compared to the 0.8% increment in fourth quarter of 2017.
In view of a stronger economic outlook and improved sentiments in the private property market, BCA projected that construction demand from the private sector to improve from $9.0 billion in 2017 to between $10.0 billion and $12.0 billion this year.
Company Outlook And Order Book Update
The operating environment is expected to remain challenging on the back of continued rising costs, competition and shortage of experienced and skilled manpower. However, the Group stays cautiously optimistic as it continues to be supported by a pipeline of projects.
As at 31 March 2018, the Group's net order book came to $249.4 million (31 March 2017: $306.1 million), with projects extending till 2021.
On the property development and investment front, on 7 February 2018, the Group announced that its wholly-owned subsidiary corporation, OKP Land Pte. Ltd. (“OKP Land”), together with Lian Soon Holdings Pte. Ltd. (“Lian Soon”), has won the bid to acquire the land parcel at Chong Kuo Road for $43.9 million. The 4,288.9-square metre land parcel has a leasehold tenure of 99 years and plans are in place to develop it into a residential condominium of about 85 units, subject to approvals from the relevant authorities.
To further diversify its earnings and build recurrent income, the Group recently expanded its property business beyond Singapore. On 9 April 2018, the Group completed the acquisition of its first overseas property, a freehold office complex, 6-8 Bennett Street, in Perth, Australia for AUD43.5 million. This acquisition is expected to contribute positively to its income for FY2018.
In addition, Amber Skye has obtained the Temporary Occupation Permit on 27 April 2017. In view of the progressive recovery of the property sector, the Group will further step up its efforts to market the remaining units of the 109-unit freehold development, after having sold more than 75% of the units. The Group has 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..
As for the project at the Pan Island Expressway exit to Tampines Expressway where the worksite incident had occurred, OKP has restarted road and drainage works along the road surface sections of the project since 27 February 2018 with the approval of the relevant authorities.
Moving forward, the Group will continue to focus on its core civil engineering business; delivering projects and securing opportunities to strengthen its order book. Concurrently, OKP will seek suitable opportunities to enlarge its foothold in property, both locally and abroad, through strategic partnerships.