20 May 2014

Keong Hong 1H2014 Result Summary - May 2014

Summary abstracted from Company's latest release on May 2014.


KEONG HONG REPORTS A 49% INCREASE IN HALF YEAR NET PROFIT TO S$8.6 MILLION AS REVENUE ROSE 122% TO S$118 MILLION


  • Proposes one tier tax-exempt interim dividend of 1.0 Singapore cent per share
  • Proposes a bonus share issue to shareholders on the basis of one bonus share for every two existing ordinary shares
  • Executive condominium project at Edgedale Plains in Punggol Central to be launched in the fourth quarter of 2014


The growth in revenue was due mainly to higher revenue recognition from ongoing projects as well as new projects such as Alexander Central, J Gateway and SkyPark Residences which have commenced work in the fourth quarter of the Company’s last financial year ended 30 September 2013.

While the Group achieved revenue growth of 122.0% in 1H2014 as compared to the 6 months ended 31 March 2013 (“1H2013”) , the increase in the cost of sales of 136.8% to S$104.3 million in 1H2014 were higher in comparison. This was due mainly to higher wages and labour levies. Keong Hong’s ongoing effort to improve workplace safety also contributed to higher business costs.

Consequently, Group’s gross profit margin slipped to 11.6% in 1H2014 from 17.2% in the 1H2013 despite an increase in gross profit by 50.7% to S$13.7 million in 1H2014. The decline in gross profit margin was also partly due to lower margin for new projects in the initial stages of construction.

Keong Hong’s Executive Director and Chief Executive Officer, Mr Ronald Leo (梁定平) remarked, “The financial results are in line with our expectations and have improved as compared to the corresponding period. This reflects our strength and resilience to stay competitive amidst intensifying competition and rising labour costs and business costs which continue to affect our margins.”

PROJECTS UPDATE AND ORDER BOOK

During 1H2014, the Group was awarded the joint tender for an 8,238.5 square metres land parcel at East Coast Road by the Urban Redevelopment Authority for S$352.8 million. The proposed hotel mixed development will comprise of a 500 to 600-room hotel with commercial space for medical suites, offices, retail and F&B. The Company had entered into a joint venture with Master Contract Services Pte Ltd and Asia Development Pte Ltd where it is holding a 20% interest to jointly develop the project.

The Group also expects to launch an executive condominium project at Edgedale Plains in Punggol Central in the fourth quarter of 2014.

The Group’s Maldives projects are currently in various stages of construction and development. The expansion of the Kooddoo domestic airport in Gaafu Alifu Atoll, including infrastructure work for the extension of its existing runway are slated for completion by the first quarter of 2015. The development of an airport hotel on the island of Kooddoo and a tourist resort on the island of Maamutaa in Maldives are slated for completion in 2015 and 2016 respectively.

As at 31 March 2014, the Group’s total construction order book stood at approximately S$494 million which will provide the Group with a sustainable flow of activities till 2016. The Group’s construction project pipeline includes Paterson 2, The Terrasse, Twin Waterfalls, Alexandra Central, J Gateway and SkyPark Residences.

DIVIDEND AND BONUS ISSUE

In light of the Group’s performance, the Board of Directors has proposed a one tier tax-exempt interim dividend of 1.0 Singapore cent per share, which works out to a dividend payout ratio of 18.0%.

The Company is also proposing a bonus share issue to shareholders on the basis of one bonus share for every two existing ordinary shares to reward the shareholders for their loyalty, and continuing support for the Company as well as to reflect the growth and expansion of the Group’s business.

OUTLOOK

The Building and Construction Authority (“BCA”) expects the overall construction demand in Singapore for 2014 to remain strong at between S$31.0 and S$38.0 billion, fuelled by higher demand for public sector projects which are expected to contribute close to 60.0% or between S$19.0 and S$22.0 billion. However, the private sector demand is expected to moderate between S$12.0 and S$16.0 billion in 2014 as compared to S$21 billion in 2013.

The Group expects the construction and building industry to continue to face challenges. The property cooling measures introduced by the Government and the substantial supply of completed housing units over the next few years will also have some downward pressure on prices and profits in the industry.

Mr Ronald Leo added, “We have stepped up our overseas development activities in the Maldives and also expanded into hotel development through the land parcel at East Coast Road, and we believe this will enhance our overall competitiveness and pave the way for future growth.”

My Notes

  • The company is listed in Catalist Board, so it normally release financial report on half yearly basis unlike main board listed companies which release financial report on quarterly basis. 
  • With current order book of S$494 million, it would bring in gross profit of around S$57 m for the group (if based on current gross profit margin of around 11.6%) or average S$19 m per year if average lifespan of the project is about 3 years. Net profit would be roughly around S$12 m per year for construction business under current order book. 
  • The group is also having 20% stake in Executive Condo JV with FCL & MBL. It is easily to generate around S$15 m - S$20 m net profit for each project. 
  • The group also venture into hotel / resort management in Maldives which may also bring in net profit of few million Singapore dollars. 
  • The latest news of the group is to venture into Commercial mixed development in East Cost together with the other 2 developers. It could bring in around S$10 m - S$15 m operating profit to the group
  • The group also invest in Kori holdings and enjoy 5% yield from this investment. It is convertible to shares of Kori holdings also. 
  • So if we combine altogether, the group can transform to a medium cap counter from small cap counter today in 3 - 4 years time
  • It is good investment for investors who have enough patience to wait for the group to grow further, while it is still remains unpopular among big investors in the market 

1 comment:

  1. Very nicely inputed highlights over financial statement and overall revenue of Keong Hong! Through studying this result, other business holders can get ideas of how they can overcome revenue as well. Analtyics tools can definitely help with keeping in front of business expenses. You can try the finance summary research module from PanXpan as one option.

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