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Financial Statements And Related Announcement - Second Quarter And/ Or Half Yearly 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. It specialises 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 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 (Half Year ended 30 June 2017 vs Half Year ended 30 June 2016)

Revenue

Our Group reported a 31.9% or $15.5 million increase in revenue to $64.1 million in the half year ended 30 June 2017 as compared to $48.6 million in the half year ended 30 June 2016. The increase was due mainly to a 182.1% increase in revenue from the maintenance segment to $21.1 million, coupled with a 4.6% increase in revenue from the construction segment to $43.0 million.

The strong growth in revenue from the maintenance segment was due mainly to the higher percentage of revenue recognised from a few major maintenance projects which were in full swing in the half year ended 30 June 2017.

The increase in revenue from the construction segment was due mainly to the higher percentage of revenue recognised from a number of existing construction projects as they progressed to a more active phase in the half year ended 30 June 2017.

The construction segment continues to be the major contributor to our Group's revenue. On a segmental basis, our core construction segment and maintenance segment accounted for 67.1% (2016: 84.6%) and 32.9% (2016: 15.4%) of our Group's revenue respectively for the half year ended 30 June 2017.

Cost of works

Our cost of works increased by 20.8% or $8.6 million from $41.5 million for the half year ended 30 June 2016 to $50.1 million for the half year ended 30 June 2017. The increase in cost of works was due mainly to:

  1. an increase in labour costs due to salary adjustments during the second quarter ended 30 June 2017;

  2. an increase in the cost of construction materials due to higher utilisation of materials as some of the projects progressed to a more active phase during the half year ended 30 June 2017;

  3. 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 half year ended 30 June 2017; and

  4. an increase in preliminary costs and overheads such as professional fees, depreciation of property, plant and machinery, hiring costs and transportation costs during the half year ended 30 June 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 half year ended 30 June 2017.

Gross profit and gross profit margin

Consequently, our gross profit for the half year ended 30 June 2017 increased by 97.6% or $6.9 million from $7.1 million for the half year ended 30 June 2016 to $14.0 million for the half year ended 30 June 2017.

Our gross profit margin improved from 14.6% for the half year ended 30 June 2016 to 21.8% for the half year ended 30 June 2017.

The higher gross profit and gross profit margin for the half year ended 30 June 2017 as compared to the half year ended 30 June 2016 were largely attributable to cost efficiencies in certain construction projects which resulted in higher gross profit margins.

Other income

Other income decreased by $1.4 million or 75.5% from $1.9 million for the half year ended 30 June 2016 to $0.5 million for the half year ended 30 June 2017. The decrease was largely attributable to:

  1. a technical management consultancy fee of $1.2 million received in relation to a piling project in Jakarta, Indonesia during the half year ended 30 June 2016, which did not recur in the half year ended 30 June 2017; and

  2. a decrease in government grants of $0.2 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).

Administrative expenses

Administrative expenses increased by $1.1 million or 24.5% from $4.3 million for the half year ended 30 June 2016 to $5.4 million for the half year ended 30 June 2017. The increase was largely attributable to (1) higher directors' remuneration (including profit sharing) accrued as a result of the higher profit generated by the Group, and (2) an increase in tender charges due to tenders for more complex projects for the half year ended 30 June 2017.

Finance expenses

Finance expenses remained relatively constant at $38,000 and $32,000 in the half year ended 30 June 2017 and 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 $1.8 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 half year ended 30 June 2017; and

    2. the recognition of profit of $71,000 for a construction project undertaken by Chye Joo – Or Kim Peow JV during the half year ended 30 June 2017.


  2. Share of profit of associated companies
    The $0.2 million increase in the share of profit of associated companies in the half year ended 30 June 2017 was due mainly to our associated company, United Singapore Builders Pte Ltd, recognising further profits for a construction project during the half year ended 30 June 2017.

Profit before income tax

Profit before income tax increased by $6.5 million or 133.0% from $4.9 million for the half year ended 30 June 2016 to $11.3 million for the half year ended 30 June 2017. The increase was due mainly to (1) the increase in gross profit of $6.9 million and (2) the increase in share of profit of associated companies and joint ventures of $2.1 million, which were partially offset by (3) the increase in administrative expenses of $1.1 million and (4) the decrease in other income of $1.4 million, as explained above.

Income tax expense

Income tax expense increased by $0.8 million or 155.0% from $0.5 million in the half year ended 30 June 2016 to $1.3 million in the half year ended 30 June 2017 due mainly to higher profit before income tax, as explained above.

The effective tax rates for the half year ended 30 June 2017 and half year ended 30 June 2016 were 11.6% and 10.6% respectively.

The effective tax rate for the half year ended 30 June 2017 was lower than the statutory tax rate of 17.0% due mainly to (1) the profit before income tax of $11.3 million which comprised share of profit of associated companies and joint ventures of $2.3 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 half year ended 30 June 2016 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 and (3) a tax rebate of 50% on the corporate tax payable

Net profit

Overall, for the half year ended 30 June 2017, net profit increased by $5.7 million or 130.4%, from $4.3 million for the half year ended 30 June 2016 to $10.0 million for the half year ended 30 June 2017, following the increase in profit before income tax of $6.5 million which was partially offset by the increase in income tax expense of $0.8 million, as explained above.

Our net profit margin increased from 8.9% for the half year ended 30 June 2016 to 15.6% for the half year ended 30 June 2017.

Income Statement Review (Second Quarter ended 30 June 2017 vs Second Quarter ended 30 June 2016)

Revenue

Our Group recorded an increase in revenue in the second quarter ended 30 June 2017 of $10.4 million or 43.2%, to $34.4 million as compared to $24.0 million in the second quarter ended 30 June 2016.

The increase in revenue from both segments was due mainly to some of the projects progressing to a more active phase during the second quarter ended 30 June 2017.

Cost of works

Our cost of works increased by 32.4% or $6.5 million from $19.9 million for the second quarter ended 30 June 2016 to $26.4 million for the second quarter ended 30 June 2017. The increase in cost of works was due mainly to:

  1. an increase in labour costs due to salary adjustments during the second quarter ended 30 June 2017;

  2. an increase in the cost of construction materials due to higher utilisation of materials as some of the projects progressed to a more active phase during the second quarter ended 30 June 2017;

  3. 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 second quarter ended 30 June 2017; and

  4. an increase in preliminary costs and overheads such as professional fees, depreciation of property, plant and machinery, hiring costs and transportation costs during the second quarter ended 30 June 2017. The professional fees related to the engagement of consultants to design the construction methods of our on-going projects.

Gross profit and gross profit margin

Our gross profit increased by $3.9 million or 95.3% from $4.1 million for the second quarter ended 30 June 2016 to $8.0 million for the second quarter ended 30 June 2017.

Our gross profit margin improved from 17.1% for the second quarter ended 30 June 2016 to 23.3% for the second quarter ended 30 June 2017.

The higher gross profit margin for the second quarter ended 30 June 2017 as compared to the second quarter ended 30 June 2016 was largely attributable to a few construction projects which had commanded better gross profit margin during the second quarter ended 30 June 2017.

Other income

Other income decreased by $0.6 million or 65.9% from $0.9 million for the second quarter ended 30 June 2016 to $0.3 million for the second quarter ended 30 June 2017. The decrease was due mainly to a technical management consultancy fee received in relation to a piling project in Jakarta, Indonesia during the second quarter ended 30 June 2016, which did not recur in the second quarter ended 30 June 2017.

Administrative expenses

Administrative expenses increased by $0.7 million or 34.6% from $2.1 million for the second quarter ended 30 June 2016 to $2.8 million for the second quarter ended 30 June 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 second quarter ended 30 June 2017.

Finance expenses

Finance expenses remained relatively constant at $18,000 and $16,000 for the second quarter ended 30 June 2017 and 2016 respectively.

Share of profit of associated companies and joint ventures

The $0.2 million increase in the share of profits of investments in the second quarter ended 30 June 2017 was due mainly to some of the associated companies and joint ventures commencing the recognition of further profits from units of the development which were ready for handover and construction profits during the second quarter ended 30 June 2017.

Profit before income tax

Profit before income tax increased by $2.8 million or 94.0% from $3.0 million in the second quarter ended 30 June 2016 to $5.8 million in the second quarter ended 30 June 2017. The increase was due mainly to (1) the increase in gross profit of $3.9 million and (2) the increase in share of results of associated companies and joint ventures of $0.2 million, which were partially offset by (3) the decrease in other income of $0.6 million and (4) the increase in administrative expenses of $0.7 million, as explained above.

Income tax expense

Income tax expense for the second quarter ended 30 June 2017 increased by $0.3 million or 69.5% from $0.5 million for the second quarter ended 30 June 2016 to $0.8 million for the second quarter ended 30 June 2017.

The effective tax rates for the second quarter ended 30 June 2017 and second quarter ended 30 June 2016 were 14.6% and 16.8% respectively.

The effective tax rate for the second quarter ended 30 June 2017 was lower than the statutory tax rate of 17.0%, due mainly to (1) the profit before income tax of $5.8 million which comprised share of profit of associated companies and joint ventures of $0.4 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 second quarter ended 30 June 2016 was comparable to the statutory tax rate of 17%.

Net profit

Overall, for the second quarter ended 30 June 2017, net profit increased by $2.5 million or 99.0% to $5.0 million as compared to $2.5 million for the second quarter ended 30 June 2016, following the increase in profit before income tax of $2.8 million, which was partially offset by the increase in income tax expense of $0.3 million, as explained above.

Our net profit margin increased from 10.4% for the second quarter ended 30 June 2016 to 14.4% for the second quarter ended 30 June 2017.

Commentary

Economic outlook

According to the Ministry of Trade and Industry (“MTI”) advance estimates, Singapore's economy expanded by 2.5% on a year-on-year (“y-o-y”) basis in the second quarter of 2017, which is the same growth as the preceding quarter.

Industry outlook

The construction sector contracted by 5.6% in the second quarter on a y-o-y basis, following the 6.1% decline in the previous quarter. The sector was weighed down by a weakness in both private sector and public sector construction activities. On a quarter-on-quarter seasonally adjusted annualised basis, the sector grew by 4.3%, compared to the 14.4% contraction in the preceding quarter.

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

Under the private residential property segment, Urban Redevelopment Authority's (“URA”) 2Q 2017 flash estimates reflected a marginally lower 0.3% decline in private residential property prices as compared to the 0.4% decline in 1Q 2017.

Company outlook and order book update

The operating environment remains challenging as the sector continues to face keen competition.

As at 30 June 2017, the Group's net construction order book amounted to $299.0 million (30 June 2016: $391.3 million), with projects 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 of CS Land Pte. Ltd.. Amber Skye obtained the Temporary Occupation Permit on 27 April 2017. As at today, more than 50% of the units had been sold and efforts in marketing the remaining units of the 109-unit freehold development will continue.

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 additional units had been handed over to buyers during the half year ended 30 June 2017.

Meanwhile, the Group is very saddened by the unfortunate and regrettable incident at the Pan-Island Expressway exit to Tampines Expressway on 14 July 2017. The Group is working closely with the authorities on the on-going investigations arising out of the incident. The Group will continue to provide all necessary assistance and support to ensure that the needs of the deceased's family and the other affected workers are fully taken care of. The Group is currently assessing the damages and additional costs for this project. Moving forward, we will continue to deliver on existing projects.