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Financials

Financial Statements And Related Announcement - Second Quarter And/ Or Half Yearly Results

Financials Archive

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Income Statement

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

Income Statement Review (Half Year ended 30 June 2018 vs Half Year ended 30 June 2017)

Revenue

Our Group reported a 21.5% or $13.8 million decrease in revenue to $50.4 million in the half year ended 30 June 2018 as compared to $64.2 million in the half year ended 30 June 2017. The decrease was due mainly to a 49.3% decrease in revenue from the construction segment to $21.8 million, partially offset by (i) a 29.4% increase in revenue from the maintenance segment to $27.3 million and (ii) a 1,279.8% increase in rental income.

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, as well as no revenue generated from a construction project at the Pan-Island Expressway exit to Tampines Expressway during the half year ended 30 June 2018.

The 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 2018.

The increase in rental income generated from investment properties was due mainly to rental income generated from the newly purchased property at 6-8 Bennett Street, East Perth, Western Australia during the second quarter ended 30 June 2018.

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 43.3% (30 June 2017: 67.0%), 54.2% (30 June 2017: 32.8%) and 2.5% (30 June 2017: 0.2%) of our Group's revenue respectively for the half year ended 30 June 2018.

Cost of sales

Our cost of sales decreased by 14.4% or $7.3 million from $50.2 million for the half year ended 30 June 2017 to $42.9 million for the half year ended 30 June 2018. 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, 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 the half year ended 30 June 2018,

  4. which were partially offset by:
  5. an accrual of additional cost arising from a construction project at the Pan-Island Expressway exit to Tampines Expressway following the mutual termination of the project between the client and our subsidiary corporation; and

  6. the increase in depreciation of property, plant and machinery and right-of-use assets,

  7. during the half year ended 30 June 2018.

Gross profit and gross profit margin

Our gross profit for the half year ended 30 June 2018 decreased by 47.0% or $6.5 million from $14.0 million for the half year ended 30 June 2017 to $7.5 million for the half year ended 30 June 2018.

Our gross profit margin decreased from 21.9% for the half year ended 30 June 2017 to 14.8% for the half year ended 30 June 2018.

The lower gross profit margin was largely attributable to lower profit margins for some current construction projects as a result of a more competitive pricing environment

Other income

Other income increased by $0.4 million or 90.6% from $0.5 million for the half year ended 30 June 2017 to $0.9 million for the half year ended 30 June 2018. The increase was largely attributable to:

  1. an increase in government grants of $0.3 million received which comprised wage credit payouts received from the Inland Revenue Authority of Singapore (Temporary Employment Credit) and Ministry of Manpower (Special Employment Credit) and incentives received from the Building and Construction Authority for technology adoption and capability development; and

  2. an increase in interest income received of $0.1 million due to higher interest earned from higher bank deposits during the half year ended 30 June 2018.

Other losses

The increase in other losses of $0.1 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 half year ended 30 June 2018.

Administrative expenses

Administrative expenses decreased by $1.0 million or 19.2% from $5.3 million for the half year ended 30 June 2017 to $4.3 million for the half year ended 30 June 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 half year ended 30 June 2018.

Finance expenses

Finance expenses increased by $0.3 million or 715.8% from $38,000 for the half year ended 30 June 2017 to $0.3 million for the half year ended 30 June 2018. The increase was due to:

  1. interest from lease liabilities of $14,000 as a result of implementation of SFRS(I) 16; and
  2. interest expenses of $0.3 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

  1. Share of profit of joint ventures
    The share of profit of joint ventures decreased by $1.8 million due mainly to the decrease in share of profit of $1.7 million 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 the half year ended 30 June 2018.

  2. Share of profit of associated companies
    The $0.4 million decrease in the share of profit of associated companies in the half year ended 30 June 2018 was due mainly to the decrease in share of profit from our associated company, United Singapore Builders Pte Ltd.

Profit before income tax

Profit before income tax decreased by $7.7 million or 67.7% from $11.3 million for the half year ended 30 June 2017 to $3.6 million for the half year ended 30 June 2018. The decrease was due mainly to (1) the decrease in gross profit of $6.5 million, (2) the increase in other losses of $0.1 million, (3) the increase in finance expenses of $0.3 million and (4) the decrease in share of profit of associated companies and joint ventures of $2.2 million. The decrease was partially offset by (1) the decrease in administrative expenses of $1.0 million and (2) the increase in other income of $0.4 million, as explained above.

Income tax expense

Income tax expense decreased by $0.8 million or 60.2% from $1.3 million in the half year ended 30 June 2017 to $0.5 million in the half year ended 30 June 2018 due mainly to lower profit before income tax, as explained above.

The effective tax rates for the half year ended 30 June 2018 and half year ended 30 June 2017 were 14.3% and 11.6% respectively.

The effective tax rate for the half year ended 30 June 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 40% on the corporate tax payable.

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.

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 half year ended 30 June 2018.

Net profit

Overall, for the half year ended 30 June 2018, net profit decreased by $6.9 million or 68.7%, from $10.0 million for the half year ended 30 June 2017 to $3.1 million for the half year ended 30 June 2018, following the decrease in profit before income tax of $7.7 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 15.6% for the half year ended 30 June 2017 to 6.2% for the half year ended 30 June 2018.

Income Statement Review (Second Quarter ended 30 June 2018 vs Second Quarter ended 30 June 2017)

Revenue

Our Group recorded a decrease in revenue in the second quarter ended 30 June 2018 of $7.1 million or 20.6%, to $27.4 million as compared to $34.5 million in the second quarter ended 30 June 2017.

The construction segment contributed $8.7 million to our Group's revenue in the second quarter ended 30 June 2018, compared to $22.5 million in second quarter ended 30 June 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 no revenue generated from a construction project at the Pan-Island Expressway exit to Tampines Expressway during second quarter ended 30 June 2018.

The $5.5 million increase in revenue from the maintenance segment was due mainly to some of the projects progressing to a more active phase during the second quarter ended 30 June 2018.

The increase in rental income generated from investment properties was due mainly to rental income from the newly purchased property at 6-8 Bennett Street, East Perth, Western Australia during the second quarter ended 30 June 2018.

Cost of sales

Our cost of sales decreased by 3.2% or $0.9 million from $26.4 million for the second quarter ended 30 June 2017 to $25.5 million for the second quarter ended 30 June 2018. 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, 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,

  4. which were partially offset by:

  5. an accrual of additional cost arising from a construction project at the Pan-Island Expressway exit to Tampines Expressway following the mutual termination of the project between the client and our subsidiary corporation; and

  6. the increase in depreciation of property, plant and machinery and right-of-use assets,

  7. during the second quarter ended 30 June 2018.

Gross profit and gross profit margin

Our gross profit decreased by $6.2 million or 77.5% from $8.0 million for the second quarter ended 30 June 2017 to $1.8 million for the second quarter ended 30 June 2018.

Our gross profit margin decreased from 23.4% for the second quarter ended 30 June 2017 to 6.6% for the second quarter ended 30 June 2018.

The lower gross profit margin for the second quarter ended 30 June 2018 as compared to the second quarter ended 30 June 2017 was largely attributable to the additional cost arising from a construction project following the mutual termination of the project between the client and our subsidiary corporation in the second quarter ended 30 June 2018.

Other income

Other income increased by $0.1 million or 55.9% from $0.3 million for the second quarter ended 30 June 2017 to $0.4 million for the second quarter ended 30 June 2018. The increase was due mainly to an increase in government grants received from the Building and Construction Authority for technology adoption and capability development in the second quarter ended 30 June 2018.

Other gains

Other gains of $0.2 million was due mainly to gain in foreign exchange resulting from the strengthening of the US dollar and Australian dollar against the Singapore dollar in the second quarter ended 30 June 2018.

Administrative expenses

Administrative expenses decreased by $0.9 million or 32.7% from $2.8 million for the second quarter ended 30 June 2017 to $1.9 million for the second quarter ended 30 June 2018. The decrease was largely attributable to lower directors' remuneration (including profit sharing) accrued as a result of the lower profit generated by the Group for the second quarter ended 30 June 2018.

Finance expenses

Finance expenses increased by $0.3 million due mainly to:

  1. interest expenses incurred on a bank term loan for the purchase of an investment property at 6-8 Bennett Street, East Perth, Western Australia; and

  2. interest from lease liabilities of $8,000 as a result of implementation of SFRS(I) 16 for the second quarter ended 30 June 2018.

Share of results of associated companies and joint ventures

The $0.2 million decrease in the share of profits of investments in the second quarter ended 30 June 2018 was due mainly to a reduced share of profit from Lakehomes Pte Ltd, the developer for the LakeLife Executive Condominium during the second quarter ended 30 June 2018.

Profit before income tax

Profit before income tax decreased by $5.5 million or 94.9% from $5.8 million in the second quarter ended 30 June 2017 to $0.3 million in the second quarter ended 30 June 2018. The decrease was due mainly to (1) the decrease in gross profit of $6.2 million, (2) the increase in finance expenses of $0.3 million and (3) the decrease in share of profit of associated companies and joint ventures of $0.2 million. The decrease was partially offset by (1) the decrease in administrative expenses of $0.9 million, (2) the increase in other income of $0.1 million and (3) the increase in other gains of $0.2 million, as explained above.

Income tax expense

Income tax expense decreased by $0.8 million or 100.7% from an income tax expense of $0.8 million for the second quarter ended 30 June 2017 to a tax credit of $6,000 for the second quarter ended 30 June 2018.

Tax credit for the second quarter ended 30 June 2018 arose from deductible temporary differences between the carrying value of assets and value of assets for tax purposes. The tax credit was partially offset by lower provision for current tax made in the second quarter ended 30 June 2018 due mainly to lower profit before income tax, as explained above.

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.

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 second quarter ended 30 June 2018.

Net profit

Overall, for the second quarter ended 30 June 2018, net profit decreased by $4.7 million or 93.9% to $0.3 million as compared to $5.0 million for the second quarter ended 30 June 2017, following the decrease in profit before income tax of $5.5 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 14.4% for the second quarter ended 30 June 2017 to 1.1% for the second quarter ended 30 June 2018.

Commentary

Economic outlook

According to the Ministry of Trade and Industry (“MTI”) advance estimates, Singapore's economy expanded by 3.8% on a year-on-year (“y-o-y”) basis in the second quarter of 2018, moderating from the 4.3% growth in the previous quarter.

Industry outlook

The construction sector contracted by 4.4% on a y-o-y basis in the second quarter, following the 5.2% decline in the previous quarter. The sector was weighed down primarily by the continued weakness in private sector construction activities. On a quarter-on-quarter seasonally adjusted annualised basis, the sector contracted by 14.6%, a reversal from the 0.9% growth in the preceding quarter.

In January 2018, the Building and Construction Authority (“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. Underpinned by an anticipated increase in demand for most building types and civil engineering works, which include major contracts for infrastructure projects like the North-South Corridor, new MRT works, Deep Tunnel Sewerage System Phase 2 and the remaining package for Runway 3 by Changi Airport Group, construction demand from the public sector is expected to be between $16.0 billion and $19.0 billion this year.

Over the medium term, construction demand is projected to be between $26.0 billion and $33.0 billion per year for the period of 2019 to 2020, and could pick up to between $28.0 billion and $35.0 billion annually for the period of 2021 to 2022. The public sector will continue to lead demand and is expected to contribute $16.0 billion to $20.0 billion per annum in 2019 to 2022.

With respect to the private residential property segment, Urban Redevelopment Authority's (“URA”) second quarter ended 30 June 2018 flash estimates reflected an increase of 3.4% in private residential property prices, compared to the 3.9% increase in the first quarter ended 31 March 2018.

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 with its pipeline of projects.

As at 30 June 2018, the Group's net order book stood at $208.3 million, with projects extending till 2021.

On the property development and investment front, the Group's wholly-owned subsidiary corporation, OKP Land Pte. Ltd. (“OKP Land”), has entered into a joint venture with Lian Soon Holdings Pte. Ltd. (“Lian Soon”) and other parties to develop the land parcel at Chong Kuo Road. Acquired by both OKP Land and Lian Soon for $43.9 million in February this year, the 4,288.9-square metre land parcel has a leasehold tenure of 99 years and plans are in place to develop a residential condominium of about 85 units, subject to approvals from the relevant authorities.

To further diversify its earnings and build a recurrent income, the Group expanded its property business beyond Singapore with the completion of the acquisition of a freehold office complex, 6-8 Bennett Street, in Perth, Australia for AUD43.5 million in April 2018.

Amber Skye obtained the Temporary Occupation Permit on 27 April 2017. Despite the latest property cooling measures, the Group will continue 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 Amber Skye and a subsidiary of CS Land Pte. Ltd..

As for the Group's construction segment, its wholly-owned subsidiary Or Kim Peow Contractors (Pte) Ltd and the Land Transport Authority (LTA) have entered into an agreement to mutually terminate the contract for the construction of the viaduct from Tampines Expressway to Pan Island Expressway (Westbound) and Upper Changi Road East, with effect from 6 July 2018. The contract was awarded by LTA on 30 November 2015 and the mutual termination of the project is expected to have a negative impact on the earnings per share and net tangible assets of the Group for FY2018.

Moving forward, the Group will continue to focus on its core civil engineering business and at the same time, seek suitable opportunities to enlarge its foothold in property, both locally and abroad, through strategic partnerships.


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