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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. 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 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 (Nine months ended 30 September 2017 vs nine months ended 30 September 2016)

Revenue

Our Group reported a 18.9% or $14.5 million increase in revenue to $91.2 million in the nine months ended 30 September 2017 as compared to $76.7 million in the nine months ended 30 September 2016. The increase was due mainly to a 147.4% increase in revenue from the maintenance segment to $30.5 million, partially offset by a 5.7% decrease in revenue from the construction segment to $60.6 million.

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 nine months ended 30 September 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, coupled with reduced revenue generated from a construction project at the PanIsland Expressway exit to Tampines Expressway during the nine months ended 30 September 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 66.5% (2016: 83.9%) and 33.5% (2016: 16.1%) respectively of our Group's revenue for the nine months ended 30 September 2017.

Cost of works

Our cost of works increased by 13.8% or $9.1 million from $65.5 million for the nine months ended 30 September 2016 to $74.6 million for the nine months ended 30 September 2017. The increase in cost of works was due mainly to:

  1. additional cost of $3.1 million arising from a construction project at the Pan-Island Expressway exit to Tampines Expressway;

  2. a penalty of $0.3 million paid for a worksite incident in September 2015;

  3. an increase in labour costs due to salary adjustments during the nine months ended 30 September 2017;

  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 2017;

  5. 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 nine months ended 30 September 2017; and

  6. an increase in preliminary costs and overheads such as professional and legal fees, depreciation of property, plant and machinery, hiring costs and transportation costs during the nine months ended 30 September 2017. The professional fees related to the engagement of consultants to design the construction methods for our on-going projects. Hiring and transportation costs related to the rental of additional heavy equipment and machineries to support existing projects during the nine months ended 30 September 2017.

Gross profit and gross profit margin

Our gross profit increased by 49.0% or $5.5 million from $11.1 million for the nine months ended 30 September 2016 to $16.6 million for the nine months ended 30 September 2017.

Our gross profit margin improved from 14.5% for the nine months ended 30 September 2016 to 18.2% for the nine months ended 30 September 2017.

The higher gross profit and gross profit margin for the nine months ended 30 September 2017 as compared to the nine months ended 30 September 2016 were largely attributable to higher gross profit margins generated from certain construction and maintenance projects.

Other income

Other income decreased by $1.5 million or 66.6% from $2.2 million for the nine months ended 30 September 2016 to $0.7 million for the nine months ended 30 September 2017. The decrease was due mainly to:

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

  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);

  3. a loss in foreign exchange resulting from the weakening of the US Dollar and Indonesian Rupiah against the Singapore Dollar during the nine months ended 30 September 2017; and

  4. a decrease in sale of construction materials and equipment hiring income from the rental of equipment and machinery during the nine months ended 30 September 2017.

Administrative expenses

Administrative expenses increased by $0.8 million or 12.3% from $6.6 million for the nine months ended 30 September 2016 to $7.4 million for the nine months ended 30 September 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 for the nine months ended 30 September 2017, and (2) the increase in staff costs due to salary adjustments.

Finance expenses

Finance expenses increased by $7,000 due mainly to an increase in finance leases for the purpose of financing the acquisition of plant and equipment to support new projects during the nine months ended 30 September 2017.

Share of results of associated companies and joint ventures

  1. Share of profits of associated companies
    The $0.3 million increase in the share of profit of associated companies was due mainly to our associated company, United Singapore Builders Pte Ltd, recognising further profits for a construction project during the nine months ended 30 September 2017.

  2. Share of profits of joint ventures
    The share of profit of joint ventures increased by $1.9 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 nine months ended 30 September 2017; and

    2. the recognition of profit of $0.1 million for a construction project undertaken by Chye Joo – Or Kim Peow JV during the nine months ended 30 September 2017.



Profit before income tax

Profit before income tax increased by $5.3 million or 74.5% from $7.1 million for the nine months ended 30 September 2016 to $12.4 million for the nine months ended 30 September 2017. The increase was due mainly to (1) the increase in gross profit of $5.5 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 $0.8 million and (4) the decrease in other income of $1.5 million, as explained above.

Income tax expense

Income tax expense increased by $0.9 million or 109.1% from $0.8 million in the nine months ended 30 September 2016 to $1.7 million in the nine months ended 30 September 2017 due mainly to higher profit before income tax, as explained above.

The effective tax rates for the nine months ended 30 September 2017 and nine months ended 30 September 2016 were 13.7% and 11.4% respectively.

The effective tax rate for the nine months ended 30 September 2017 was lower than the statutory tax rate of 17.0% due mainly to (1) the profit before income tax of $12.4 million which comprised share of profit of associated companies and joint ventures of $2.6 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 nine months ended 30 September 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, net profit increased by $4.4 million or 70.1%, from $6.3 million for the nine months ended 30 September 2016 to $10.7 million for the nine months ended 30 September 2017, following the increase in profit before income tax of $5.3 million which was partially offset by the increase in income tax expense of $0.9 million, as explained above..

Our net profit margin increased from 8.2% for the nine months ended 30 September 2016 to 11.8% for the nine months ended 30 September 2017.

Income Statement Review (Third Quarter ended 30 September 2017 vs Third Quarter ended 30 September 2016)

Revenue

Our Group registered revenue of $27.1 million in the third quarter ended 30 September 2017 as compared to $28.1 million in the third quarter ended 30 September 2016. The decrease in revenue from the construction segment was partially offset by an increase in revenue from the maintenance segment.

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, coupled with no revenue generated from a construction project at the Pan-Island Expressway exit to Tampines Expressway during the third quarter ended 30 September 2017.

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 during the third quarter ended 30 September 2017.

Cost of works

Our cost of works increased by 1.8% or $0.4 million from $24.0 million for the third quarter ended 30 September 2016 to $24.4 million for the third quarter ended 30 September 2017. The increase in cost of works was due mainly to:

  1. an additional cost of $3.1 million arising from a construction project at the Pan-Island Expressway exit to Tampines Expressway;

  2. a penalty of $0.3 million paid for a worksite incident in September 2015;

  3. 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 third quarter ended 30 September 2017; and

  4. an increase in labour costs due to salary adjustment during the third quarter ended 30 September 2017,

  5. which were partially offset by:

  6. the decrease 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 third quarter ended 30 September 2017.

Gross profit and gross profit margin

Our gross profit decreased by $1.5 million or 35.3% from $4.1 million for the third quarter ended 30 September 2016 to $2.6 million for the third quarter ended 30 September 2017.

Our gross profit margin dropped from 14.5% for the third quarter ended 30 September 2016 to 9.8% for the third quarter ended 30 September 2017.

The lower gross profit and gross profit margin for the third quarter ended 30 September 2017 as compared to the third quarter ended 30 September 2016 were largely attributable to the additional cost arising from a construction project in the third quarter ended 30 September 2017.

Other income

Other income remained at $0.3 million for the third quarter ended 30 September 2017 and 30 September 2016.

Administrative expenses

Administrative expenses decreased by $0.2 million or 10.7% from $2.3 million for the third quarter ended 30 September 2016 to $2.1 million for the third quarter ended 30 September 2017. The decrease was largely attributable to the lower directors' remuneration (including profit sharing) as a result of the lower profit generated by the Group during the third quarter ended 30 September 2017.

Finance expenses

Finance expenses remained relatively constant at $20,000 and $19,000 for third quarter ended 30 September 2017 and 2016 respectively.

Share of profit of associated companies and joint ventures

The $0.1 million increase in the share of profits of investments in the third quarter ended 30 September 2017 was due mainly to some of the associated companies and joint ventures recognising higher construction profits during the third quarter ended 30 September 2017.

Profit before income tax

Profit before income tax decreased by $1.2 million or 50.5% from $2.3 million in the third quarter ended 30 September 2016 to $1.1 million in the third quarter ended 30 September 2017. The decrease was due mainly to (1) the decrease in gross profit of $1.5 million, which was partially offset by (2) the increase in share of results of investments of $0.1 million and (3) the decrease in administrative expenses of $0.2 million, as explained above.

Income tax expense

Income tax expense for the third quarter ended 30 September 2017 increased by $0.1 million or 29.3% from $0.3 million for the third quarter ended 30 September 2016 to $0.4 million for the third quarter ended 30 September 2017.

The effective tax rates for the third quarter ended 30 September 2017 and third quarter ended 30 September 2016 were 34.1% and 13.1% respectively.

The effective tax rate for the third quarter ended 30 September 2017 was higher than the statutory tax rate of 17% due mainly to certain non-deductible items added back for tax purposes.

The effective tax rate for the third quarter ended 30 September 2016 was lower than the statutory tax rate of 17.0%, due mainly to incentives from enhanced deduction for staff training, rental of qualified construction equipment and automation equipment expenditure under the Productivity and Innovation Credit scheme.

Net profit

Overall, for the third quarter ended 30 September 2017, net profit decreased by $1.3 million or 62.4% to $0.7 million as compared to $2.0 million for the third quarter ended 30 September 2016, following the decrease in profit before income tax of $1.2 million, coupled with the increase in income tax expense of $0.1 million, as explained above.

Our net profit margin decreased from 7.0% for the third quarter ended 30 September 2016 to 2.7% for the third quarter ended 30 September 2017.

Commentary

Economic outlook

According to the Ministry of Trade and Industry advance estimates, Singapore's economy expanded by 4.6% on a year-on-year (“y-o-y”) basis in the third quarter of 2017, which is higher than the 2.9% growth in the previous quarter.

Industry outlook

The construction sector contracted by 6.3% in the third quarter on a y-o-y basis, following the 6.8% decline in the second quarter. The sector was weighed down primarily by continued weakness in private sector construction activities. On a quarter-on-quarter seasonally adjusted annualised basis, the sector contracted by 9.2%, compared to the 2.4% growth in the preceding quarter.

The total value of construction projects carried out in the first eight months of 2017 reached $12.6 billion, according to the Building and Construction Authority's forecast and actual construction demand data released on 14 August 2017. Demand from the public sector will stay healthy given that the government is bringing forward $700.0 million worth of public amenities projects to this year and next. This is on top of another $700.0 million worth of public infrastructure contracts that it announced in March this year, which will also be brought forward to 2017 and 2018.

Over the medium to long term, the average construction demand is projected to be between $26.0 billion and $35.0 billion per year for the period of 2018 to 2019, and between $26.0 billion and $37.0 billion annually for the period of 2020 to 2021.

Under the private residential property segment, Urban Redevelopment Authority's third quarter of 2017 flash estimates reflected an increase of 0.5% in private residential property prices as compared to the 0.1% decline in the second quarter of 2017.

Company Outlook and Order Book Update

The operating environment remains challenging due to keen competition. However, the Group stays optimistic as it continues to be supported by a pipeline of projects.

As at 30 September 2017, the Group's net construction order book came to $288.0 million (30 September 2016: $366.6 million), with projects extending till 2020.

On the property development and investment front, 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.. Amber Skye obtained the Temporary Occupation Permit on 27 April 2017. More than 60% of the units had been sold and efforts in marketing the remaining units of the 109-unit freehold development will continue.

The Group also holds a 10% stake in Lakehomes Pte Ltd – a property development joint venture – which launched the LakeLife Executive Condominium (“EC”) located in Jurong. LakeLife EC has obtained the Temporary Occupation Permit on 30 December 2016 and units were handed over to buyers during the nine months ended 30 September 2017.

Meanwhile, the Group continues to work closely with the authorities on the on-going investigations relating to the worksite incident at the Pan-Island Expressway exit to Tampines Expressway. The Group will continue to provide all necessary assistance and support to ensure that the needs of the affected workers are fully taken care of.