Review of performance of the Group

Income Statement Review – Six-Month Period Ended 30 June 2023 (“1H2023”) vs Six-Month Period Ended 30 June 2022 (“1H2022”)

Group revenue increased 46.9% from $74.2 million achieved in 1H2022 to $108.9 million in 1H2023 with lower contribution from the General Construction and Specialist Engineering business segments offset by higher contribution from the Property Development and Green Technology business segments. General construction business segment recorded a lower revenue as new projects which started this year are still at the early stage. Specialised Engineering business segment also registered a decrease in revenue with lower construction activities for Singapore and Thailand subsidiaries as well as the Prefabricated Prefinished Volumetric Construction (“PPVC”) business during the period in review.

The Group’s Property Development business segment launched the sale of the residential units of The LINQ @ Beauty World (“The LINQ”) in November 2020. The LINQ is a 20-storey mixed development along Upper Bukit Timah Road. As construction work progresses, based on the Percentage of Completion (“POC”), a revenue of $55.2 million was recognised in 1H2023 as compared to $14.9 million in 1H2022.

Gross profit margin for both 1H2023 and 1H2022 was 15.7%. With a higher revenue, the overall gross profit improved 47.3% from $11.6 million in 1H2022 to $17.1 million in 1H2023.

Other operating income increased by 45.9% due to higher interest income earned during the period with higher bank deposit rates and an increase in training income from BCA Approved Training and Testing Centre and Approved Overseas Testing Centre operated by the Group.

Other expense comprised foreign exchange differences amounted to a loss of $0.5 million and $0.2 million for 1H2023 and 1H2022 respectively.

Administrative costs increased marginally by $0.1 million or 7.8% due to moving expenses of the store which the Group has secured through a three-year Temporary Occupancy Licence and expenses incurred for minor fitting-up works at the store.

Other operating costs increased by $1.2 million or 15.2% from higher amortisation of capitalised contract cost relating to the sales commission paid for sale of property development units at The LINQ which is amortised in a systematic manner via POC of the development. This increase was offset by a write back of doubtful debts during the period with the recovery of some trade debts for which allowance for doubtful debts was previously made.

Finance costs increased by $2.1 million or 137.2% with an increase in interest rates and additional bank borrowings during the period in review.

Share of results of joint ventures and associates were a profit of $0.3 million and $0.1 million in 1H2023 respectively.

Income tax expense increased on the back of higher profit achieved during the period in review.

The Group had a profit attributable to equity holders of the Company of $2.1 million for 1H2023.

Statement of Financial Position and Cash Flow Review

Right-of-use assets increased by $2.2 million as the Group obtained a three-year Temporary Occupancy Licence in respect of a land parcel for storage purpose and also purchased some plant and machinery under finance lease arrangements. The amount of investment in joint ventures decreased by $5.3 million with distribution of profits. Deferred tax assets were reduced as the tax benefits associated with the tax losses were now utilised.

For current assets, loans to a joint venture of $5.0 million were fully repaid during the period.

Current contract assets increased by $21.3 million arising mainly from an increase in contract assets from the sale of development properties relating to the residential units of The LINQ which the progressive claims from the purchasers are not due yet. Development properties increased by $4.0 million due to capitalisation of the construction cost for the unsold commercial units of the development.

Current trade and other payables increased by $11.3 million due to accrual of construction cost that has yet to be settled and an increase in retention payables. Other liabilities decreased by $2.3 million mainly due to settlement of the amount payable to the vendor for the purchase of the factory at Seelong in Malaysia in December 2022 by drawing down a property loan obtained from a bank to finance it.

Contract liabilities decreased by $3.5 million as project costs were progressively incurred.

Current and non-current lease liabilities increased with the three-year Temporary Occupancy Licence in respect of a land parcel and plant and machinery purchased under finance lease arrangements.

Short term borrowings increased mainly due to trade financing obtained for purchase of materials.

An additional term loan of $3.0 million was obtained for the purchase of the factory at Seelong in Malaysia. With repayment of other existing term loans, non-current borrowings decreased by $4.7 million.

For the financial period ended 30 June 2023, operating cash flows before working capital changes stood at $9.5 million. However, there was a net cash used in operating activities of $7.5 million due to the timing of progressive claims for The LINQ which resulted in an increase in contract assets and construction cost incurred for the commercial retail podium of The LINQ.

Net cash generated from investing activities was $9.1 million. This comprised $5.6 million from the distribution of profits from joint ventures, $3.9 million from repayment of loans from a joint venture and net cash outflow of $0.4 million arising from the purchase and disposal of property, plant and equipment.

Net cash used in financing activities amounted to $7.8 million. This was mainly due to repayment of $7.6 million for long term borrowings and $2.4 million for lease liabilities, offset by a reduction in pledged deposits of $0.3 million and proceeds of $2.6 million from total borrowings. The Company also paid final dividend of $1 million declared for the last financial year after obtaining shareholders’ approval in the annual general meeting held on 27 April 2023.

The Group’s cash holding was $44.7 million as at 30 June 2023, down by $6.3 million from $51.0 million as at the end of the last financial year.

Commentary

On 14 July 2023, the Ministry of Trade and Industry (“MTI”) announced that the Singapore economy grew by 0.7 per cent on a year-on-year basis in the second quarter of 2023, faster than the 0.4 per cent growth recorded in the previous quarter.

The construction sector grew by 6.6 per cent year-on-year in the second quarter, extending the 6.9 per cent growth in the first quarter. Growth during the quarter was supported by expansions in both public and private sector construction output.

Uncertainties in the global economies remain. The Group expects operating conditions in the construction sector to remain challenging. With the shortage of labour supply and an inflationary cost environment, overall construction cost and operating expenses are expected to rise. The rising interest rates will continue to add upward pressure on finance costs.

The Group will continue to stay vigilant on managing its project costs and operating expenses. It will remain focus on executing the order book on hand and leverage on its track record in building construction and specialised engineering to secure more projects.

In property development, the Group has put up for sale the two-storey retail podium with 53 strata-titled units at The LINQ through an expression of interest exercise.

The Group is supported by a healthy pipeline of projects. New contracts secured in the first half-year include two general construction projects worth approximately $200 million. As at 30 June 2023, the Group has a construction order book of approximately $533 million.