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Financials

Financial Statements And Related Announcement - Full Yearly Results

Financials Archive

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Income Statement

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Consolidated Statement of comprehensive income

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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 roadrelated facilities and building construction-related works. We have expanded our core business to include property development and investment. We tender for both public and private civil engineering and infrastructure construction projects.

We have two core business segments: Construction and Maintenance.

Income Statement Review (Current financial year ended 31 December 2017 vs previous financial year ended 31 December 2016)

Revenue

Our Group reported a 5.6% or $6.2 million increase in revenue to $117.3 million for FY2017 as compared to $111.1 million for FY2016. The increase was due mainly to a 88.5% increase in revenue from the maintenance segment to $38.8 million, partially offset by a 13.3% decrease in revenue from the construction segment to $78.4 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 FY2017.

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 in FY2017.

The construction segment continued to be the major contributor to our Group's revenue. On a segmental basis, our core construction segment and maintenance segment accounted for 66.9% (2016: 81.5%) and 33.1% (2016: 18.5%) respectively of our Group's revenue for FY2017.

Cost of works

Our cost of works increased by 7.2% or $6.4 million from $89.2 million for FY2016 to $95.6 million for FY2017. The increase in cost of works was due mainly to:

  1. 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 sub-contracted to external parties;

  2. an increase in labour costs due to salary adjustments;

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

  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 FY2017;

  5. an additional cost of $3.2 million arising from a construction project at the PanIsland Expressway exit to Tampines Expressway; 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 FY2017. 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 FY2017.

Gross profit and gross profit margin

Our gross profit for FY2017 decreased marginally by 1.0% or $0.2 million from $21.9 million for FY2016 to $21.7 million for FY2017.

Our gross profit margin decreased marginally from 19.7% for FY2016 to 18.5% for FY2017.

The lower gross profit margin for FY2017 was largely attributable to lower profit margins for new and some current maintenance projects as a result of a more competitive pricing environment and rising manpower costs.

Other income

Other income decreased by $1.6 million or 64.3% from $2.5 million for FY2016 to $0.9 million for FY2017. 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 FY2016, which did not recur in FY2017;

  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); and

  3. a loss of $0.3 million in foreign exchange resulting from the weakening of the US Dollar against the Singapore Dollar during FY 2017,

  4. which were partially offset by:

  5. an increase in interest income received of $0.1 million due to higher interest earned from higher bank deposits during FY2017.

Administrative expenses

Administrative expenses decreased by $0.8 million or 7.5% from $10.8 million for FY2016 to $10.0 million for FY2017. The decrease was largely attributable to:

  1. lower directors' remuneration (including profit sharing) accrued as a result of the lower profit generated by the Group for FY2017; and

  2. a provision for impairment of non-trade receivable of $0.8 million during FY2016, which did not recur in FY2017. The provision for impairment of non-trade receivable related to a loan extended to an associated company, CS Amber Development Pte Ltd,

  3. which were partially offset by:

  4. an increase in staff costs due to salary adjustments during FY2017

Finance expenses

Finance expenses remained relatively constant at $77,000 and $72,000 in FY2017 and FY2016 respectively.

Share of results of associated companies and joint ventures

  1. Share of profit of joint ventures
    The share of profit of joint ventures decreased by $0.7 million due mainly to:

    1. the $0.8 million decrease in the share of profits from Lakehomes Pte Ltd, the developer for the LakeLife Executive Condominium, based on the recognition of profits from the few remaining units of the development which were ready for handover during FY2017,

    2. which were partially offset by:

    3. the $0.1 million increase in the share of profit from a construction project undertaken by Chye Joo – Or Kim Peow JV during FY2017.


  2. Share of profit of associated companies
    The $0.2 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 secured during FY2017.

Profit before income tax

Profit before income tax decreased by $1.5 million or 9.2% from $16.5 million for FY2016 to $15.0 million for FY2017. The decrease was due mainly to (1) the decrease in gross profit of $0.2 million, (2) the decrease in other income of $1.6 million and (3) the decrease in the share of profit of associated companies and joint ventures of $0.5 million. The decrease was partially offset by the decrease in administrative expenses of $0.8 million, as explained above.

Income tax expense

Income tax expense increased by $0.1 million or 4.7% from $2.2 million in FY2016 to $2.3 million in FY2017 despite lower profit before income tax, as explained above.

The effective tax rates for FY2017 and FY2016 were 15.1% and 13.1% respectively.

The effective tax rate for FY2017 was lower than the statutory tax rate of 17.0% due mainly to (1) the profit before income tax of $15.0 million comprising 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 FY2016 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

Our net profit decreased by $1.6 million or 11.3%, from $14.3 million for FY2016 to $12.7 million for FY2017 due to the decrease in profit before income tax of $1.5 million coupled with the increase in income tax expense of $0.1 million, as explained above.

Our net profit margin decreased from 12.9% for FY2016 to 10.8% for FY2017.

Income Statement Review (Fourth Quarter ended 31 Dec 2017 vs Fourth Quarter ended 31 Dec 2016)

Revenue

Our Group's revenue was $26.1 million in 4Q2017 compared to $34.4 million in 4Q2016.

The construction segment contributed $17.8 million to our Group's revenue in 4Q2017, compared to $26.2 million in 4Q2016. 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 4Q2017.

Revenue from the maintenance segment remained relatively constant at $8.3 million in 4Q2017 and 4Q2016.

Cost of works

Our cost of works decreased by 11.1% or $2.6 million from $23.7 million in 4Q2016 to $21.1 million in 4Q2017. The decrease in cost of works 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, soil-testing, landscaping and metalworks which are usually sub-contracted to external parties;

  2. the decrease in the cost of construction materials due to lesser utilisation of materials; and
  3. the decrease in labour costs during 4Q2017.

Gross profit and gross profit margin

Our gross profit for 4Q2017 decreased by $5.7 million or 53.8% from $10.8 million for 4Q2016 to $5.1 million for 4Q2017.

Our gross profit margin decreased from 31.3% in 4Q2016 to 19.5% in 4Q2017.

The lower gross profit margin was largely attributable to lower profit margins for new and some current projects as a result of a more competitive pricing environment and rising manpower costs during 4Q2017.

Other income

Other income decreased by $0.1 million or 46.3% from $0.3 million for 4Q2016 to $0.2 million for 4Q2017. The decrease was due mainly to loss in foreign exchange resulting from the weakening of the US dollar against the Singapore dollar in 4Q2017.

Administrative expenses

Administrative expenses decreased by $1.6 million or 38.6% from $4.2 million for 4Q2016 to $2.6 million for 4Q2017. The decrease was largely attributable to:

  1. lower directors' remuneration (including profit sharing) accrued as a result of the lower profit generated by the Group; and

  2. a provision for impairment of non-trade receivable of $0.8 million during 4Q2016, which did not recur in 4Q2017. The provision for impairment of non-trade receivable related to a loan extended to an associated company, CS Amber Development Pte Ltd, during 4Q2016.

Finance expenses

Finance expenses stood at $19,000 and $21,000 for 4Q2017 and 4Q2016 respectively.

Share of results of associated companies and joint ventures

The decrease in share of profits of associated companies and joint ventures of $2.6 million was due mainly to a reduced share of profit from Lakehomes Pte Ltd, the developer for the LakeLife Executive Condominium, during 4Q2017.

Profit before income tax

Profit before income tax decreased by $6.8 million or 72.9% from $9.3 million in 4Q2016 to $2.5 million in 4Q2017. The decrease was due mainly to (a) the decrease in gross profit of $5.7 million, (b) the decrease in share of profits of associated companies and joint ventures of $2.6 million and (c) the decrease in other income of $0.1 million. The decrease was partially offset by a decrease in administrative expenses of $1.6 million, as explained above.

Income tax expense

Income tax expense decreased by $0.8 million or 58.0% from $1.4 million in 4Q2016 to $0.6 million in 4Q2017.

The effective tax rate for 4Q2017 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 4Q2016 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

For 4Q2017, net profit decreased by $6.0 million or 75.4% to $2.0 million as compared to $8.0 million for 4Q2016 due to the decrease in profit before income tax of $6.8 million which was partially offset by the decrease in income tax expense of $0.8 million, as explained above.

Our net profit margin decreased from 23.3% for 4Q2016 to 7.5% for 4Q2017.

Commentary

Economic Outlook

According to the Ministry of Trade and Industry (“MTI”) advance estimates, Singapore's economy expanded by 3.1% on a year-on-year (“y-o-y”) basis in the fourth quarter of 2017, which is lower than the 5.4% growth in the previous quarter. For 2017, the economy grew by 3.5%, which is in line with earlier forecasts of 3.0% to 3.5%.

Industry Outlook

The construction sector contracted by 8.5% in the fourth quarter on a y-o-y basis, following the 7.7% decline in the third 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 3.6%, easing from the 5.5% contraction in the preceding quarter.

The total value of construction projects awarded in 2017 came to $24.5 billion, which is lower than the estimates of $28.0 billion to $35.0 billion projected by the Building and Construction Authority's (“BCA”) in January last year. According to BCA, the lower than expected construction demand in 2017 was due to the rescheduling of a few major infrastructure projects such as the North-South Corridor to 2018.

BCA projected the total value of construction contracts to be awarded this year 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 additional major contracts for infrastructure projects like the North-South Corridor, Deep Tunnel Sewerage System Phase 2 as well as rolling out of the remaining package for Runway 3 by Changi Airport Group.

BCA anticipates a steady improvement in construction demand over the medium term, 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 of 2019 to 2020, and between $28.0 billion and $35.0 billion annually for the period of 2021 to 2022.

Under the private residential property segment, Urban Redevelopment Authority's (“URA”) 4Q 2017 flash estimates reflected an increase of 0.8% in private residential property prices, which is similar to the 0.7% increment in 3Q 2017. For the whole of 2017, prices rose by 1.1% compared to the 3.1% decline in the previous year.

In view of a stronger economic outlook and improved sentiments in the private property market, BCA projected that construction demand from the private sector will 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 as the positive outlook has yet to translate to contracts and awards. However, the Group stays cautiously optimistic as it continues to be supported by a pipeline of projects.

As at the date of this announcement, the Group's net order book came to $268.0 million (31 December 2016: S$329.9 million), with projects extending till 2021.

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 of CS Land Pte. Ltd.. Amber Skye obtained the Temporary Occupation Permit on 27 April 2017. In view of the gradual recovery in the property sector, the Group will step up its efforts to market the remaining units of the 109-unit freehold development after having sold about 75% of the units.

To further diversify its earnings and build a recurrent income, the Group announced on 7 February 2018 that it jointly acquired its first overseas property, a freehold office complex, 6-8 Bennett Street, in Perth, Australia for AUD$43.5 million. This acquisition is expected to contribute to the Group's earnings for the financial year ending 31 December 2018.

On 7 February 2018, the Group also announced that its wholly-owned subsidiary, OKP Land Pte. Ltd. (OKP Land), together with Lian Soon Holdings Pte. Ltd. (Lian Soon), had won the bid to acquire the land parcel at Chong Kuo Road for S$43.9 million. With an area of 4,288.9 square metres and a leasehold tenure of 99 years, the land parcel is intended for development into a residential condominium of about 85 units, subject to approvals from the relevant authorities. OKP Land intends to enter into a joint venture with Lian Soon and other parties to develop the land.

Moving forward, the Group will continue to strengthen its core civil engineering business and deliver existing projects. It will also seek suitable opportunities to broaden its foothold in property, both locally and abroad, through strategic tie-ups with experienced partners.

On 11 January 2018, it was reported in The Straits Times, under the headline “Probe into last July's viaduct collapse not completed yet”, that investigations concerning the worksite incident at the Pan Island Expressway exit to Tampines Expressway are still on-going. The Group will continue to work closely with the authorities on the investigations.


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