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Financial Statements And Related Announcement - Third Quarter Results

Financials Archive

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Income Statement

Consolidated Statement of comprehensive income

Statements of Financial Position

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 three business segments: Construction, Maintenance and Rental income from investment properties.

Income Statement Review (Nine Months ended 30 September 2019 vs Nine Months ended 30 September 2018)

Revenue

Our Group reported a 17.8% or $12.8 million decrease in revenue to $59.3 million in the nine months ended 30 September 2019 as compared to $72.1 million in the nine months ended 30 September 2018. The decrease was due mainly to a 43.2% decrease in revenue from the maintenance segment to $19.6 million, partially offset by (i) a 1.6% increase in revenue from the construction segment to $35.4 million and (ii) a 57.2% increase in rental income.

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 nine months ended 30 September 2019.

The decrease in revenue from the maintenance segment was due mainly to a lower percentage of revenue recognised from a few newly-awarded maintenance projects during the nine months ended 30 September 2019.

The increase in rental income generated from investment properties was due mainly to rental income generated from the property at 6-8 Bennett Street, East Perth, Western Australia which has been fully occupied since the second quarter ended 30 June 2019.

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 59.8% (30 September 2018: 48.4%), 33.1% (30 September 2018: 47.9%) and 7.1% (30 September 2018: 3.7%) of our Group's revenue respectively for the nine months ended 30 September 2019.

Cost of sales

Our cost of sales decreased by 18.0% or $11.0 million from $61.2 million for the nine months ended 30 September 2018 to $50.2 million for the nine months ended 30 September 2019. The decrease in cost of sales was due mainly to:

  1. the decrease in sub-contracting costs which were mainly costs incurred for specialised works such as bored piling, asphalt works, mechanical and electrical works, soiltesting, landscaping and metalworks which are usually sub-contracted to external parties; and

  2. the decrease in preliminary costs and overheads such as worksite expenses and professional fees related to the engagement of consultants to design the construction methods of our on-going projects,

  3. which were partially offset by:

  4. 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 nine months ended 30 September 2019;

  5. an increase in overheads such as upkeep of machineries and hiring costs related to the rental of additional heavy equipment and machineries to support existing projects; and

  6. an increase in labour costs,

  7. during the nine months ended 30 September 2019.

Gross profit and gross profit margin

Our gross profit for the nine months ended 30 September 2019 decreased by 16.4% or $1.8 million from $10.9 million for the nine months ended 30 September 2018 to $9.1 million for the nine months ended 30 September 2019.

Our gross profit margin was comparable at 15.3% and 15.1% for the nine months ended 30 September 2019 and 30 September 2018 respectively.

Other gains, net

Other gains increased by $0.6 million or 74.4% from $0.9 million for the nine months ended 30 September 2018 to $1.5 million for the nine months ended 30 September 2019. The increase was due mainly to a technical management consultancy fee in relation to a piling project in Jakarta, Indonesia during the nine months ended 30 September 2019.

Administrative expenses

Administrative expenses decreased by $0.2 million or 4.0% from $6.4 million for the nine months ended 30 September 2018 to $6.2 million for the nine months ended 30 September 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 nine months ended 30 September 2019.

Finance expenses

Finance expenses increased by $0.4 million or 64.2% from $0.6 million for the nine months ended 30 September 2018 to $1.0 million for the nine months ended 30 September 2019. The increase was due mainly to:

  1. an increase in notional interest on loan of $0.2 million resulting from fair value adjustment of loan from a non-controlling shareholder; and

  2. an increase in interest expenses of $0.2 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 results 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 nine months ended 30 September 2019.

Profit before income tax

Profit before income tax decreased by $2.5 million or 50.3% from $4.9 million for the nine months ended 30 September 2018 to $2.4 million for the nine months ended 30 September 2019. The decrease was due mainly to (1) the decrease in gross profit of $1.8 million, (2) the increase in finance expenses of $0.4 million and (3) the decrease in share of profit of associated companies and joint ventures of $1.1 million. The decrease was partially offset by (1) the increase in other gains (net) of $0.6 million and (2) the decrease in administrative expenses of $0.2 million, as explained above.

Income tax expense

Income tax expense decreased by $0.1 million or 16.1% from $0.7 million in the nine months ended 30 September 2018 to $0.6 million in the nine months ended 30 September 2019 due mainly to lower profit before income tax, as explained above.

The effective tax rates for the nine months ended 30 September 2019 and nine months ended 30 September 2018 were 23.8% and 14.1% respectively.

The effective tax rate for the nine months ended 30 September 2019 was higher than the statutory tax rate of 17.0%. This was due mainly to the profit before income tax of $2.4 million which took into account the share of loss of associated companies and joint ventures of $1.0 million, which was accounted for at the associated company and joint venture levels.

The effective tax rate for the nine months ended 30 September 2018 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 20% on the corporate tax payable.

Non-controlling interests

Non-controlling interests of $0.4 million was due to contributions from our subsidiary corporation, Raffles Prestige Capital Pte Ltd, in the nine months ended 30 September 2019.

Net profit

Overall, for the nine months ended 30 September 2019, net profit decreased by $2.4 million or 55.9%, from $4.2 million for the nine months ended 30 September 2018 to $1.8 million for the nine months ended 30 September 2019, following the decrease in profit before income tax of $2.5 million which was partially offset by the decrease in income tax expense of $0.1 million, as explained above.

Our net profit margin decreased from 5.8% for the nine months ended 30 September 2018 to 3.1% for the nine months ended 30 September 2019.

Income Statement Review (Third Quarter ended 30 September 2019 vs Third Quarter ended 30 September 2018)

Revenue

Our Group recorded a decrease in revenue of $1.0 million or 4.5% to $20.7 million in the third quarter ended 30 September 2019, as compared to $21.7 million in the third quarter ended 30 September 2018.

The construction segment contributed $11.0 million to our Group's revenue in the third quarter ended 30 September 2019, compared to $13.1 million in the third quarter ended 30 September 2018. The decrease in revenue from the construction segment was due mainly to a few construction projects reaching completion.

The $1.0 million increase in revenue from the maintenance segment was due mainly to a higher percentage of revenue recognised from a number of existing maintenance projects as they progressed to a more active phase during the third quarter ended 30 September 2019.

The increase in rental income generated from investment properties was due mainly to rental income generated from the property at 6-8 Bennett Street, East Perth, Western Australia which has been fully occupied in the third quarter ended 30 September 2019.

Cost of sales

Our cost of sales decreased by 3.7% or $0.7 million from $18.3 million for the third quarter ended 30 September 2018 to $17.6 million for the third quarter ended 30 September 2019. The decrease in cost of sales was due mainly to:

  1. the decrease in sub-contracting costs which were mainly costs incurred for specialised works such as bored piling, asphalt works, mechanical and electrical works, soiltesting, landscaping and metalworks which are usually sub-contracted to external parties; and

  2. the decrease in preliminary costs and overheads such as worksite expenses and professional fees related to the engagement of consultants to design the construction methods of our on-going projects,

  3. which were partially offset by:

  4. 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;

  5. an increase in overheads such as upkeep of machineries and hiring costs related to the rental of additional heavy equipment and machineries to support existing projects; and

  6. an increase in labour costs due to salary adjustment,

  7. during the third quarter ended 30 September 2019.

Gross profit and gross profit margin

Our gross profit decreased by $0.3 million or 8.6% from $3.4 million for the third quarter ended 30 September 2018 to $3.1 million for the third quarter ended 30 September 2019.

Our gross profit margin decreased from 15.8% for the third quarter ended 30 September 2018 to 15.1% for the third quarter ended 30 September 2019.

The lower gross profit margin was largely due to lower profit margins for some current construction projects as a result of a more competitive pricing environment and rising manpower costs.

Other gains, net

The increase of $90,000 in other gains was due mainly to the decrease in foreign exchange loss during the third quarter ended 30 September 2019.

Administrative expenses

Administrative expenses were comparable at $2.1 million during the third quarters ended 30 September 2019 and 30 September 2018 respectively.

Finance expenses

Finance expenses remained at $0.3 million during the third quarters ended 30 September 2019 and 30 September 2018 respectively.

Share of results of associated companies and joint ventures

The $0.4 million decrease in the share of profits of investments in the third quarter ended 30 September 2019 was due mainly to net share of loss of associated companies compared to the net share of profits from associated companies during the third quarter ended 30 September 2018.

Profit before income tax

Profit before income tax decreased by $0.7 million or 55.0% from $1.2 million in the third quarter ended 30 September 2018 to $0.5 million in the third quarter ended 30 September 2019. The decrease was due mainly to (1) a decrease in gross profit of $0.3 million, and (2) a decrease in share of profit of associated companies and joint ventures of $0.4 million, partially offset by an increase in other gains of $90,000, as explained above.

Income tax expense

Income tax expense increased by $0.1 million or 101.3% from $0.2 million in the third quarter ended 30 September 2018 to $0.3 million for the third quarter ended 30 September 2019.

The effective tax rate for the third quarter ended 30 September 2019 was higher than the statutory tax rate of 17.0%, due mainly to (1) to the profit before income tax of $0.5 million which took into account the share of loss of associated companies and joint ventures of $0.4 million, which was accounted for at the associated company and joint venture levels, (2) the relatively higher corporate tax rate of our Australian subsidiary corporation, and (3) certain non-deductible items added back for tax purposes.

The effective tax rate for the third quarter ended 30 September 2018 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 20% on the corporate tax payable.

Non-controlling interests

Non-controlling interests of $0.2 million was due to contributions from our subsidiary corporation, Raffles Prestige Capital Pte Ltd, in the third quarter ended 30 September 2019.

Net profit

Overall, for the third quarter ended 30 September 2019, net profit decreased by $0.8 million or 79.0% to $0.2 million as compared to $1.0 million for the third quarter ended 30 September 2018, following the decrease in profit before income tax of $0.7 million and the increase in income tax expense of $0.1 million, as explained above.

Our net profit margin decreased from 4.8% for the third quarter ended 30 September 2018 to 1.1% for the third quarter ended 30 September 2019.

Commentary

Economic outlook

According to the Ministry of Trade and Industry (“MTI”) advance estimates, Singapore's economy grew by 0.1% on a year-on-year (“y-o-y”) basis in the third quarter of 2019, maintaining the same pace of growth in the previous quarter.

Looking ahead, the MTI has lowered Singapore's full-year growth to between 0% and 1%, from 1.5% to 2.5% in its previous forecast. This comes on the back of global financial uncertainties given Singapore's sensitivity to global trade flows, including the US-China trade war, an economic slowdown in China and geopolitical risks in Hong Kong and the Persian Gulf.

Industry outlook

The construction sector grew by 2.7% on a year-on-year basis in the third quarter, extending the 2.8% expansion in the previous quarter. Growth of the construction sector was supported by a pickup in both public and private sector construction activities. On a quarter-on-quarter seasonally-adjusted annualised basis, the sector contracted by 1.1%, a slower pace of decline as compared to the 5.3% contraction in the second quarter.

According to the Building and Construction Authority (“BCA”), the forecast construction demand for 2019 remains at $27.0 billion to $32.0 billion. According to the mid-year forecast and actual construction demand data released by the BCA in August 2019, the total value of construction projects for the first eight months of 2019 reached $22.1 billion, out of which $12.0 billion, or 54.3%, was made up of public sector projects.

The construction demand for private sector is expected to remain steady at between $11.0 billion and $13.0 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 expects the construction demand to steadily improve, with a projection of between $27.0 billion and $34.0 billion per year for the period of 2020 to 2021 and could pick up to between $28.0 billion and $35.0 billion annually for the period of 2022 to 2023.

The above developments reflect a healthy operating environment for the construction sector and the Group will continue to focus on tendering for public sector infrastructure projects.

With respect to the private residential property segment, latest real estate statistics from the Urban Redevelopment Authority (“URA”) showed a 1.3% increase in the private residential property index in 3Q2019, compared to the 1.5% increase in 2Q2019.

Company Outlook and Order Book Update

Looking ahead, the Group expects the cost of construction and other operating costs to continue an uptrend amidst the challenging operating environment. However, the Group remains cautiously optimistic as it continues to be supported by a healthy pipeline of construction projects. The Group will continue to strive to raise productivity through technology adoption and innovative measures; training of workers and higher usage of equipment and tools.

As at 30 September 2019, the Group's order book stood at $285.3 million, with projects extending till 2023.

On the property development front, the Group's joint venture residential project, The Essence, was launched in March 2019 and the Group will continue to actively market this development.

The Group's 74-unit residential project in Bukit Panjang, Phoenix Heights, is also well on track to launch in 2020, having earlier received the necessary regulatory approvals from the Singapore Land Authority for development and the grant of a top-up to 99-year lease.

The Group's investment property at 6-8 Bennett Street in Perth, Australia continues to provide a source of recurring rental income.

Moving forward, the Group will continue to strengthen its capabilities in its core civil engineering business in order to remain as the preferred civil engineering contractor across various industries, locally and abroad. The Group remains fully committed to the smooth execution and delivery of its existing projects.

As part of the Group's long-term strategy to diversify earnings and build a recurring income stream, the Group will continue to explore other business opportunities to broaden its foothold in property development and investment through strategic tie-ups with experienced partners.