The year under review had been a difficult one due mainly to the disruptions caused by the Covid-19 pandemic, which raged worldwide. With lockdowns, business shutdowns and restricted people movements, the global economic climate was severely affected even as it was still facing strong headwinds from protectionist fervour, trade wars and volatile financial markets. The Covid-19 crisis, economic downturn and political upheavals will continue to adversely impact business operations worldwide including those in Singapore in the current year.
According to the Ministry of Trade and Industry’s statistics announced on 15 February 2021, the Singapore economy contracted by 5.4 per cent in 2020, which was a reversal from the 1.3 per cent growth registered a year ago. The contraction was due to the widespread adverse economic impact of the Covid-19 pandemic.
The construction industry has been adversely impacted with a sharp fall of 35.9 per cent from the 1.6 per cent growth recorded in 2019. The sector was plagued by weakness in both public sector and private sector construction works. Construction work was stopped at worksites during the past year, affecting businesses and workers badly. It was only in December 2020 with Phase 3 re-opening that there was a steady resumption of construction work.
Despite the challenges faced in the Singapore economy, OKP Holdings Limited (OKP) remains confident that the company can overcome these obstacles by remaining focused on its vision to be a leading transport infrastructure and civil engineering company in Singapore, the region and beyond. Our vision will continue to be the main motivating factor in moving the Group ahead as we embrace change to prevail over dire times to achieve our business goals in securing a bright and sustainable future.
The company is determined to implement its strategy, which is to focus on its core capabilities, looking at overseas business opportunities, and diversifying earnings through property developments and other investments.
We have positioned ourselves as a progressive and nimble company through forming joint ventures to develop properties, tender for complex projects, and purchasing properties in Singapore and overseas. Our joint ventures to develop properties have brought positive results. Together with our partners, we have completed two residential projects, Amber Skye and LakeLife, in 2017. In addition, OKP and a joint partner had won the tender in February 2018 to acquire a land parcel at Chong Kuo Road, Singapore, which is being developed into an 84-unit condominium called The Essence.
As part of our strategy to look into overseas business opportunities and diversify the Group’s earnings, OKP, jointly with HSB Holdings Pte. Ltd., bought its first overseas property in Perth, Australia in April 2018. This freehold office complex is fully tenanted as at 31 December 2020.
Since its founding, the company has grown considerably with its staff strength growing from 10 employees in 1967 to 409 in 2002 and 788 today.
In overcoming various challenges while undergoing the ups and downs of the business cycle, we have grown to become a reputable business in the transport infrastructure and civil engineering industry in Singapore and the region. The Group continues to be inspired by its mission – to be the first and preferred civil engineering contractor for the various industries, here and overseas. Through the decades, OKP’s reputation has increased due to its many advantages such as our sound track record, widely acknowledged expertise, excellent management team, and skilful and capable employees in civil and engineering projects.
The company thoroughly considers sustainability issues in the formulation of its strategies. We believe that sustainability means operating our business in a way that is not only profitable but also makes an affirmative impact on our stakeholders and the environment. We believe this is a strategic methodology which leads to greater efficiencies and excellent business performance. Since 2010, OKP has published a sustainability report and for the sixth year running, is presenting a sustainability report based on the Stock Exchange (SGX) Sustainability Reporting Guide and the Global Reporting Initiative (GRI) Standards.
The past financial year was not an easy time for the Group due to the Covid-19 pandemic as it strives to embrace change and establish a resilient company with a steady and sustainable future. It saw revenue of $69.6 million for the financial year ended 31 December 2020 (FY2020), a drop of 14.5 per cent compared to $81.3 million for FY2019.
The decrease was due mainly to a 7.8 per cent drop in revenue from the construction segment to $46.1 million, and a 32.9 per cent decline in revenue from the maintenance segment to $17.2 million. The decrease was partially offset by a 9.9 per cent rise in rental income to $6.3 million. The decrease in revenue from both the construction and maintenance segments was attributed mainly to the lower percentage of revenue recognised from several existing and newly awarded construction projects during FY2020.
The increase in rental income generated from investment properties came mainly from rental income from the property at 6-8 Bennett Street, East Perth, Western Australia. This office complex has been fully occupied since the second quarter ended 30 June 2019.
The main contributor to the Group’s revenue continued to be the construction segment, which accounted for 66.2 per cent (FY2019: 61.4 per cent) of total revenue for the financial year. The maintenance segment accounted for 24.7 per cent (FY2019: 31.5 per cent) of overall revenue. One positive development is the increase in rental income generated from investment properties. Rental income accounted for 9.1 per cent (FY2019: 7.1 per cent) of our company’s revenue.
Gross profit decreased by 32.0 per cent to $7.4 million for FY2020 compared to $10.8 million a year ago. The rental income segment showed a rise in gross profit of $4.3 million for FY2020, up from $3.9 million in FY2019. However, there was a decrease in the gross profit of the construction and maintenance segments to $3.0 million, down from $6.9 million in the previous financial year. The lower gross profit margin for these two core segments was attributed chiefly to the temporary halt of construction activities in compliance with the government’s Covid-19 measures. Overall, the negative impact from the Covid-19 situation on the construction and maintenance segments was cushioned by the finalisation of a few existing projects during FY2020.
However, other gains increased by 320.8 per cent to $10.7 million for FY2020 from $2.5 million a year ago. These gains were mainly from the receipt of payouts and rebates from the government of $8.6 million, which aimed to provide wage support to employers, as part of the support measures for built environment firms affected by Covid-19; and the one-off reversal of impairment allowance made of $1.2 million following the completion of the disposal of a former associated company, CS Amber Development Pte Ltd. In addition, there was an increase in the gain on foreign exchange of $0.8 million largely due to the appreciation of Australian dollar against the Singapore dollar.
However, these gains were partially offset by a non-recurring technical management consultancy fee of $0.6 million in relation to a piling project in Jakarta, Indonesia which was earned in FY2019; an increase in net fair value loss of $1.3 million resulting from a fair value gain of $0.6 million in FY2019 to a fair value loss of $0.7 million in FY2020, arising from the revaluation of some of the investment properties; plus a decrease in interest income from bank deposits of $0.5 million, during FY2020.
Administrative expenses went up by 20.9 per cent to $12.1 million for FY2020 from $10.0 million a year ago. The increase was largely due to legal fees incurred for an ongoing trial and provision for potential fines of a subsidiary corporation and two employees.
The Group’s balance sheet stayed solid. With a healthy cash position of $79.0 million as at 31 December 2020, net tangible assets were $121.4 million, up from $119.4 million a year ago. This was equivalent to net tangible assets per share of 39.56 Singapore cents, compared to 38.71 Singapore cents per share in the previous year.
To reward shareholders for their continuous and unwavering support, the Board of Directors has proposed a final cash dividend of $0.007 per share. The proposed dividend represents a dividend yield of 3.5 per cent, based on OKP’s closing share price of 0.17 cents on 31 December 2020.
Enhancing Our Strengths And Resilience
The Group’s industrious efforts and proficient skills have been well acknowledged in the industry as OKP has won numerous accolades for its work through the decades.
During the year under review, the company continued to build its strengths and resilience by winning a total of two projects - two maintenance projects. The Group has completed two construction projects, which were handed over successfully to the clients. We continued the execution of nine ongoing construction projects and six maintenance projects, which have been secured since February 2015.
Currently, our net order book stays healthy at $254.0 million, with projects extending till 2023.
Looking Confidently Towards The Future
Due to the Covid-19 pandemic, the Singapore construction industry faces uncertainties in the foreseeable future although there is optimism from a pipeline of construction projects.
The Building and Construction Authority (BCA) gave some positive projections for the industry. On 18 January 2021, its announcement stated that the total value of construction contracts to be awarded in 2021 will be in the range of between $23.0 billion and $28.0 billion. This is an increase from $21.3 billion in 2020 registered during the ongoing Covid-19 pandemic.
The better construction outlook is because the public sector is expected to boost the demand to between $15.0 billion and $18.0 billion with an anticipated stronger demand for public housing and infrastructure projects. Some of the impending major public sector projects to be awarded in 2021 include various contracts under the Jurong Region MRT Line, the Cross Island MRT Line Phase 1 and the Deep Tunnel Sewerage System Phase 2.
For the private sector, construction demand is anticipated to decrease to between $8.0 billion and $10.0 billion in 2021, down from between $10.5 billion and $12.5 billion in the previous year. Development of the remaining en bloc residential sites, major retrofitting of commercial developments, and construction of high-specification industrial buildings to meet business needs are some of the potential projects.
Looking ahead over the medium term, BCA expects a gradual improvement in construction demand, projecting demand to reach between $25.0 billion and $32.0 billion per year from 2022 to 2025. During this period, the public sector, which contributed 65 per cent of total demand in Singapore, is expected to contribute $14.0 billion to $18.0 billion while construction demand in the private sector is anticipated to progress steadily to reach between $11.0 billion and $14.0 billion per year from 2022 to 2025.
Looking at the above hopeful estimates, civil engineering construction demand is expected to stay buoyant beyond 2021. Indeed, this brighter 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 2020 real estate statistics, which were announced on 22 January 2021, indicated that the prices of private residential properties went up by 2.1 per cent, compared with 0.8 per cent increase in the previous quarter. For 2020, prices of private residential properties increased by 2.2 per cent, compared with 2.7 per cent increase in the previous year.
Despite the challenges in the construction industry, OKP is embracing change and prevailing to achieve a sustainable and stable business as the Group is an experienced contractor, especially for public sector projects. The BCA’s projections of higher construction demand particularly from the public sector and for civil engineering works in 2021 is good news for the company. This is because of our good reputation and track record in the public sector. In addition, the government has announced on 4 March 2021 that it will be spending over $315.0 million in the next few years to add another 1,000 hectares of green spaces over the next 10 to 15 years and expand Singapore’s Park Connector Network. The Group sees opportunities in the tenders for these new recreational trails. It will be more proactive in bidding for more contracts not only from the public sector but also from the private sector in the coming year.
To stay ahead of the Covid-19 situation and competitive built environment, OKP has been widening its expertise and increasing its capabilities by venturing into property developments locally and overseas.
In 2017, the Group has successfully completed two property projects - the 109-unit freehold Amber Skye at Amber Road, and the 546-unit executive condominium, LakeLife at Yuan Ching Road/Tao Ching Road, both in Singapore.
Currently, the company is progressing well with its two new residential developments, The Essence at Chong Kuo Road and Phoenix Residences at Phoenix Road, both in Singapore.
Jointly with a partner, the Group won the tender to purchase a land parcel at Chong Kuo Road for $43.9 million in February 2018 to redevelop the 99-year leasehold site into a condominium called The Essence. This property development has bagged 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. This 99-year leasehold project is expected to receive its temporary occupation permit (TOP) in 2023.
Acquired at $33.1 million in 2018 through a successful tender by the Group’s 25.0 per cent-owned associated company, USB Holdings Pte. Ltd., Phoenix Residences is a 74-unit residential development project with a 99-year leasehold tenure. This residential project in Bukit Panjang was launched in December 2020 to warm response. It is expected to receive its TOP in November 2023.
To expand and diversify its business, the Group has also been investing in several properties locally and overseas.
In January 2021, the Group completed the acquisition of 35 Kreta Ayer Road for $11.3 million. The property has a freehold tenure and comprises a three-storey with attic shophouse. In November 2019, OKP acquired a freehold property located at 32 Tagore Lane in Singapore. The $8.0 million freehold property comprises a two-storey corner light industrial terrace factory.
The Group has also expanded its footprint overseas by buying its first overseas property, a freehold office complex in Perth, Australia in April 2018. Acquired at A$43.5 million, this property at 6-8 Bennett Street in East Perth, Australia has helped the Group to build recurrent rental income. This property is fully occupied by a mix of government and corporate tenants.
The Property Council of Australia’s Office Market Report released on 4 February 2021, highlighted that 20 per cent of Perth Central Business District office stock is vacant, marking a 1.6 per cent increase since July last year. With the Covid-19 pandemic also affecting commercial property in 2020, Perth’s office market is thus facing difficulties. However, optimism remains that the Covid-19 crisis will be soon be eradicated and positive market sentiments will return. Thus, the company is confident that its Australian acquisition will continue to be a worthwhile investment.
The company will continue to focus on its core civil engineering business, where it has a decades-long track record and wide expertise as the preferred civil engineering contractor for various industries.
However, we are also pragmatic and expect the operating environment in the construction industry to remain uncertain especially with the Covid-19 crisis still causing many disruptions. In addition, worries pile up with increasing business costs especially on materials such as steel, and a shortage of experienced and skilled workforce due to prevailing government policies and legislation.
To tackle these problems, the Group has reviewed its operations and enhanced its productivity through various measures. These include using more advanced technologies and conducting training programmes.
Indeed, we will fortify our efforts to bid for new projects, both locally and overseas and explore new businesses, through acquisitions, joint ventures and/or strategic alliances, that could complement our construction and maintenance business. These will enable us to step into new markets and gain new clients.
A Note Of Thanks
On behalf of the Board, I would like to say a big thank you for the unwavering and dependable support of our shareholders, clients, business associates and suppliers through the decades, and particularly through the past difficult Covid-19 plagued year. I would like to express my sincere gratitude to the management team for their strong leadership, collaborative efforts and excellent teamwork. As we move ahead, I am assured that every one of you will give your dedication and uttermost best to make the Group resilient and robust so as to attain a sustainable future.
I would also like to express my heartfelt appreciation to our Board of Directors for their invaluable guidance and wise counsel. All of you have contributed your time, hard work and ideas to make OKP what it is today – and I am indebted to all of you for this unstinting support. As we put our hands together as a united team, we can prevail over difficulties, buttress our strengths to build a resilient and progressive company and achieve our vision to be one of the leading transport infrastructure and civil engineering companies in Singapore and the region now and in the years ahead.
Or Kim Peow