Chairman's Statement
Dear Shareholders,
The year under review had provided the opportunity to rebound from the disruptions caused by the Covid-19 pandemic and for the revival of economic business prospects worldwide. Like other nations, Singapore has been optimistic but cautious in the current landscape and managed to expand its economy by 1.1 per cent in 2023, according to the Ministry of Trade and Industry's (MTI) announcement on 15 February 2024. However, this growth is down from the 3.8 per cent expansion in 2022.
The good news is that the Singapore construction industry is moving away from the impact of the Covid-19 pandemic since the Building and Construction Authority removed all sectoral Covid-19 restrictions on 15 March 2022. With the resumption of construction activities, the construction sector grew by 5.2 per cent, improving from the 4.6 per cent growth in 2022, according to MTI's figures. The increase was supported by expansions in both public and private sector construction works.
Amidst the existing challenges affecting the construction industry, including manpower shortage and increased costs, OKP Holdings Limited (OKP) remains steadfast in achieving its vision. Our vision is for the Group to be a leading transport infrastructure and civil engineering company in Singapore, the region and beyond.
Our strategy stays the same – to focus on our core capabilities, venture into new overseas business opportunities, and diversify earnings through property developments and other investments.
As a progressive and agile company, we set up strategic joint ventures to develop properties, bid for complex projects, and acquire investment properties in Singapore and overseas. Our joint ventures for property development have consistently yielded positive outcomes. The Group, along with two other joint venture partners, successfully developed the 84-unit condominium, The Essence, at Chong Kuo Road, Singapore. As part of its strategy to explore overseas business opportunities and diversify earnings, the Group together with a joint venture partner, purchased its first overseas property in Perth, Australia in April 2018.
Since its founding, our organisation has grown sizably, with its staff strength growing from 10 staff in 1967 to 409 in 2002 and 871 today.
Through the decades of overcoming the ups and downs of the business cycle, we have grown to become a wellacknowledged business in the transport infrastructure and civil engineering industry in Singapore and the region. The Group continues to be motivated by its mission – to be the first and preferred civil engineering contractor for the various industries, here and overseas. We believe that our reputation has grown due to our strong track record, vast expertise, efficient management team, and professional and capable employees in civil engineering projects.
For the year under review, we have issued two reports – the annual report and a sustainability report. The Group deliberates through sustainability issues in establishing its strategies. We believe that sustainability means operating our business in a way that is not only profitable but also makes a positive impact on our stakeholders and the environment. We believe this strategy leads to greater proficiency and enhanced business performance. Since 2011, OKP has published a sustainability report as part of the annual report. It is presented as a separate report based on the SGX Sustainability Reporting Guide, the Global Reporting Initiative (GRI) Standards, and the Task Force on Climate-related Financial Disclosures (TCFD).
REVIEWING OUR PERFORMANCE
As the Group gathers momentum to revive its business past the Covid-19 crisis, we are pleased to report a $42.7 million rise in revenue to $160.4 million during the financial year ended 31 December 2023 (FY2023). This was a jump of 36.3 per cent compared to $117.6 million during the preceding financial year ended 31 December 2022 (FY2022). The increase was mainly attributed to a 25.0 per cent increase in revenue from the construction segment to $102.4 million, alongside a significance 75.2 per cent rise in revenue from the maintenance segment to $51.6 million. In addition, there was a marginal 1.7 per cent increase in rental income.
The positive revenue growth in the construction and maintenance segments was mainly due to a higher percentage of revenue recognised from various ongoing and newly awarded construction and maintenance projects as they progressed to a more active phase in FY2023.
The slight increase in rental income was mainly from the rental income generated by the property located at 6-8 Bennett Street, East Perth, Western Australia. Rental income from OKP's investment properties at 35 Kreta Ayer Road and 69 and 71 Kampong Bahru Road held steady as recurring income.
The main contributor to the Group's revenue continued to be the construction segment, which accounted for 63.8 per cent (FY2022: 69.7 per cent) of total revenue for the financial year. The maintenance segment accounted for 32.2 per cent (FY2022: 25.0 per cent) while rental income accounted for 4.0 per cent (FY2022: 5.3 per cent) of our total revenue.
Gross profit increased by 128.5 per cent to $24.7 million in FY2023 compared to $10.8 million a year ago. The construction and maintenance segments displayed a substantial $13.8 million increase, soaring to $20.7 million in FY2023 from $6.9 million in FY2022. The rental income segment demonstrated a marginal increase in gross profit contribution from $3.9 million to $4.0 million.
The gross profit margin for the construction and maintenance segments went up significantly to 13.4 per cent in FY2023 compared to 6.2 per cent a year ago. This improvement was mainly due to the Group's ongoing initiatives to enhance cost management, despite the challenges posed by higher material costs and rising manpower costs.
The Group's balance sheet stayed healthy. With a strong cash position of $81.7 million as at 31 December 2023, net tangible assets amounted to $167.8 million, an increase from $122.0 million a year ago. This was equivalent to net tangible assets per share of 54.66 Singapore cents, compared to 39.75 Singapore cents per share in the previous year.
To reward shareholders for their support, the Group had previously paid a special interim dividend of $0.005 per share on 27 September 2023. In addition, the Board has proposed a final dividend of $0.007 per share and a special dividend of $0.008 per share. This works out to a total dividend of $0.02 per share for FY2023. The proposed total dividend represents a dividend yield of 9.3 per cent, based on OKP's closing share price of 0.215 cents on 31 December 2023.
ENHANCING OUR CAPABILITIES
The Group's hard work and extensive skills have been recognised widely in the industry as it has won numerous awards for its work through the decades.
We secured five projects in 2023 – one construction project and four maintenance projects, amounting to a total of approximately $322.5 million. Among these was our largest contract to date – a $188.3 million contract from the Land Transport Authority for the construction of Singapore's new cycling path network in seven towns islandwide, including all associated infrastructure.
During the year under review, one maintenance project, which was secured since 2021, was completed. In addition, two road maintenance contracts executed by a joint venture partnership, Eng Lam – United E&P JV, were completed and handed over to the respective clients.
In 2023, we had 11 ongoing construction projects, and five ongoing maintenance projects, including the five newly secured contracts. As at 31 December 2023, our net order book stays healthy at $518.6 million, with projects extending till 2027.
FORWARD AS A TEAM
The Singapore construction industry is getting up on its feet again with the resumption of projects.
Business expectations for the first half of 2024 are optimistic. According to the Building and Construction Authority's (BCA) Business expectations of the construction sector January to June 2024 (1H2024) survey, contractors have largely positive views in their business outlook for 1H2024. Overall, a net weighted balance of 21 per cent of contractors expect business conditions in the construction sector to improve in 1H2024, compared to business conditions from July to December 2023. In particular, business sentiments have improved significantly among the largest A1 contractors.
All segments of contractors foresee an increase in tendering opportunities in 1H2024. A weighted 81 per cent of contractors expect tendering opportunities to stay the same or rise in 1H2024. However, all segments except for CW01-C1/C2/C3 contractors foresee shrinking profit margins in the next six months, despite positive outlooks on business and tender opportunities. Moreover, all segments foresee increased tender competition in 1H2024, likely affecting expectations on profitability.
In terms of employment, sentiments on its outlook are generally positive for 1H2024. Overall, a net weighted balance of 11 per cent of contractors are expected to increase hiring in 1H2024.
Considering construction costs, net weighted balances of contractor sentiments point to expected continued uptrends of construction costs and tender price in 1H2024. Among the key construction resources, a significant higher proportion of contractors expect materials costs to increase in 1H2024, which could be in view of potential supply shocks from ongoing geopolitical conflicts and climate change.
This encouraging outlook is buttressed by the BCA's announcement on 15 January 2024, which projected that the total construction demand in 2024 will range between $32 billion and $38 billion. Over the medium term from 2025 to 2028, BCA expects a steady improvement in construction demand to reach between $31 billion and $38 billion per year.
Based on the above upbeat expectations and projections for the construction sector, civil engineering construction demand is expected to remain strong. The positive outlook improves the prospects for transport infrastructure and civil engineering companies such as OKP.
In the case of the property market, the Urban Redevelopment Authority's 4th Quarter 2023 real estate statistics, which were announced on 26 January 2024, highlighted that prices of private residential properties rose by 2.8 per cent in 4th quarter 2023, compared with the 0.8 per cent increase in the previous quarter. Sales transactions at selected newly-launched projects were mainly responsible for this increase. For the whole of 2023, prices of private residential properties increased by 6.8 per cent, compared to the 8.6 per cent increase in 2022.
These statistics on the private residential market largely reflect the current market conditions after the latest round of property cooling measures introduced in September 2022. The Group expects the private residential market to stay challenging and will remain vigilant in replenishing its land bank.
In the midst of global difficulties due to economic and political instability, OKP remains steadfast in its commitment to building a sustainable and resilient business, leveraging on its extensive experience as a contractor, especially for public sector projects. To move ahead of the competition and to grow its business, the Group has been broadening its expertise and enhancing its capabilities by exploring property developments locally and overseas.
The Group's two recent projects in Singapore are doing well. It has sold all 74 units of Phoenix Residences, its residential project at Phoenix Road. This project is expected to attain its temporary occupation permit (TOP) in July 2024. In addition, the Group's joint venture residential project, The Essence, has achieved full sales and obtained its TOP in June 2023. This development has won three awards – Boutique Condo Interior Design (Winner), Best Boutique Development High Density (Highly Commended) and Best Boutique Condo Architectural Design (Highly Commended) – at Property Guru Asia Property Awards Singapore 2019.
To build and diversify its business, OKP has also been investing in several properties locally and overseas. In Singapore, we own a portfolio of investment properties. These include three purchases in 2021 -- a freehold, threestorey shophouse situated at 35 Kreta Ayer Road, and two freehold two-storey conservation shophouses located at 69 and 71 Kampong Bahru Road. One freehold property comprising a two-storey corner light industrial terrace factory at 32 Tagore Lane was acquired in 2019.
We also spread our footprint overseas by acquiring our first overseas property, a freehold office complex in Australia in April 2018. This property at 6-8 Bennett Street in East Perth, Western Australia is fully occupied by a mix of government and corporate tenants.
According to the Property Council of Australia's Office Market Report released on 2 February 2024, the Perth office market stays encouraging. Demand for office space is expected to remain strong in 2024, propped by expanding tenants from the mining, engineering, and government sectors. The relocation to quality premises has jumped over the last 24 months with data showing that 52 per cent of tenants relocating in the Perth Central Business District upgraded to higher quality buildings. With the limited new supply in 2024, accelerated rental growth in 2024 is projected. In view of the above estimates, Perth's office market remains positive and the Group has seen that its Australian acquisition has been a good investment, contributing steadily to its rent revenue.
At OKP, we will continue to focus on our core business in the civil engineering business, where we have a long track record and wide expertise as the preferred civil engineering contractor for various industries. However, we are also realistic and expect the operating environment in the construction industry to remain unpredictable, driven by rising costs for manpower, building materials, electricity, and financing.
To tackle these issues, the Group will remain watchful in navigating challenging market conditions and continue to ensure effective cashflow management and remain prudent with its capital structure and finances. We will continue to raise our productivity by integrating technology into our business processes to reduce reliance on manpower and upgrade our workforce.
Supported by a decades-long track record and industry expertise, OKP will continue to enhance its capabilities to win contracts from both the public and private construction sectors. We will also explore new businesses through acquisitions, joint ventures and/or strategic alliances, that could complement our construction and maintenance business. These will enable us to enter new markets and engage new clients.
EMBRACING SUSTAINABILITY, TECHNOLOGIES AND INNOVATIONS
Our organisation is embracing sustainability, technologies and innovations as one of our sustainability goals. To better our business and operations, we invest in and adopt cutting-edge technologies and innovative approaches. We also emphasise the importance of sustainability, and are committed to environmentally sustainable goals. We endorse environmentally sustainable practices such as using solar panels at our premises to reduce carbon emission, and carbon mineralised concrete to reduce embodied carbon for our projects. Please refer to OKP's Sustainability Report for more details on our sustainability efforts.
In addition, the Group invests in new technologies and innovations to better its operations. In 2023, we adopted new innovations such as using an artificial intelligence vision system in excavators for consistent vigilance at construction sites, wet bulb globe temperature monitoring system to take temperature on an hourly basis with readings transmitted to website, and motorised noise barriers. We also upgraded our smart earth control system version 2 to remove the discharge of silty water into the environment.
A NOTE OF THANKS
On behalf of the Board, I would like to express my deeply-felt appreciation for the support of our shareholders, clients, business associates and suppliers through the decades. I would like to extend a big thank you and laud the management team for their effective leadership and excellent teamwork. As we move forward as a team, I am sure that each of you will give your commitment and best efforts to make the Group strong and steady so as to attain a sustainable future.
It is with great sadness that I note the passing of our Independent Director, Mr Tan Boen Eng, on 28 February 2024. He was also the Chairman of the Nominating Committee and Member of the Audit Committee and Remuneration Committee. He was first appointed as Independent Director on 25 June 2002, just before OKP was listed on the Singapore Stock Exchange on 26 July 2002. He has provided invaluable advice and support to our organisation through the decades.
I would also like to thank Lead Independent Director Dr Chen Seow Phun, John and Independent Director Mr Nirumalan s/o V Kanapathi Pillai for their notable services as both will be retiring at the forthcoming annual general meeting on 23 April 2024.
It is my privilege to welcome our new Independent Director Dr Ting Seng Kiong, to our Board from 15 March 2024. As a registered professional engineer in Singapore, who has been involved in numerous structural and geotechnical consultancies, he will avail his vast expertise and knowledge to support the Group.
Indeed, my deepest gratitude goes to all Board members for their helpful guidance and wise counsel through the decades. To all stakeholders, I am immensely grateful to all of you for your staunch and loyal support.
We believe that we are on the right path to building a resilient and top-quality company and realise our vision to be one of the leading transport infrastructure and civil engineering companies in Singapore and the region today and in the years ahead.
Or Kim Peow
Group Chairman