See Hup Seng

SHS Holdings Ltd

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1Q2018 Results Ended 31 March 2018

Financials Archive

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Profit & Loss

Profit & Loss

Statement of Comprehensive Income

Statement of Comprehensive Income/(Expense)

Balance Sheet

Balance Sheet

Review of Performance

Overview

1Q18 Overview

For the first quarter ended 31 March 2018 ("1Q18"), the Group recorded a 123% jump in revenue from continuing operations to S$13.4 million and a net loss after tax of S$1.5 million, 8% improvement over the loss of S$1.61 million in 1Q17. As at 31 March 2018, the Group's total equity was S$201.5 million from S$203.3 million as at 31 December 2017. The Group has cash and cash equivalent balance of S$41.1 million. The Group is in a net cash position with low debt-to-total equity ratio of 10.8%.

Revenue from Continuing Operations


Revenue From Continuing Operations

The Group's revenue jumped 123% to S$13.4 million in 1Q18, compared with S$6.0 million in the previous corresponding period with all core segments registering improvement.

CP segment

Revenue for CP segment increased by 38% to S$2.9 million in 1Q18 from S$2.1 million in 1Q17 largely driven by increase orders from the plant operations. With improvement in oil prices sustaining above US$60 per barrel, we are seeing some confidence returning to the marine and offshore sectors in particular new vessel builds which our plant operations depend on. However, such improvement has at best been gradual and has helped the plant operations steadily move up its capacity utilization.

E&C segment

Revenue for E&C segment jumped 164% year-on-year to S$9.0 million in 1Q18 from S$3.4 million in 1Q17 rendered by both the steel engineering and the modular business. The steel engineering business revenue improvement is due to timing as there were more progress in the delivery of larger scale projects on hand in this quarter and for the modular business the delivery of the pre-fabricated bathroom units for the Lendlease Paya Lebar condominium project.

Solar Energy segment

Revenue for the Solar Energy segment jumped 404% to S$1.2 million as it begins delivering some customer delayed projects of 2017 and new contracts secured for 2018.

Gross Profit and Gross Margin

Gross Profit From Continuing Operations

Gross Profit From Continuing Operations

For 1Q18, the Group's gross profit increased 14% year-on-year to S$1.8 million, compared with S$1.6 million in 1Q17. The increase was mainly driven by the improved performance of the CP and the Solar Energy segment.

Notwithstanding the jump in revenue, Group's gross margin decreased from 27% in 1Q17 to 13.8% in 1Q18 driven by the E&C segment as the projects on hand were lower in margins in part driven by the lackluster Singapore construction sector.

CP segment

CP segment's gross profit jumped significantly to S$0.81 million in 1Q18 from S$0.14 million in 1Q17, on the back of the more CP services from the plant operations. The increased revenue helped improve utilization of the factory capacity and equipment resulting also in gross margin increasing to 27.6% from 6.3% a year ago.

E&C segment

Notwithstanding higher revenue in 1Q18, gross profit for E&C segment decreased by 48% from S$15 million in 1Q17 to S$0.8 million in 1Q18. This is driven by the steel engineering projects on hand which are facing margin compression from both the lackluster environment and cost overruns. In addition, 1Q17 margins were also boosted by recovery of additional variation orders from completed projects whose costs were already charged in earlier year.

Solar Energy segment

The significant improvement in gross profit for the solar energy segment is driven by the higher number of projects being executed in 1Q18 as explained above.

Other Income

Other income increased 55% year-on-year from S$0.3 million in 1Q17 to S$0.4 million in 1Q18 mainly due to higher rental and service income from the E&C segment which helped offset lower interest income earned due to lower yield and lower surplus cash placed in fixed deposits.

Selling, Distribution, Administrative and Other Operating Expenses

Expenses and Finance Costs

Total operating expenses increased by 10% year-on-year from S$3.4 million in 1Q17 to S$3.7 million in 1Q18, due to higher other operating expenses largely from the full quarter impact from the consolidation of the modular business acquired from end of January 2017 and the unrealized foreign exchange loss arising from the unfavorable USD exchange rate movement a key currency for the solar project in Bangladesh and for the modular business.

Selling and distribution expenses increased by 38% to S$181,000 in 1Q18, compared with S$131,000 in 1Q17 on higher travelling expenses as the Group extend its operations in Asia in particular its modular business in the Australasia region.

Administrative expenses were lower by 17% to S$1.5 million in 1Q18 on further cost rationalization measures and write backs of provisions no longer required.

Other operating expenses increased by 41% to S$2.0 million in 1Q18 on higher foreign exchange loss and the higher operating expenses of the modular business acquired in January 2017 as explained above.

Finance Costs

Finance costs were higher at S$46,000 in 1Q18, compared with S$35,000 in 1Q17 due largely to higher bank borrowings.

Share of Associates' Results

Share of loss of associated companies dipped significantly from S$186,000 in 1Q17 to S$45,000 in 1Q18 as 2 final units from the Heron Bay project was disposed at a loss in 1Q17.

Financial Position and Cash Flow Analysis

Non-current assets increased S$5.5 million from S$145.3 million as at 31 December 2017 to S$150.8 million as at 31 March 2018. This was mainly due to purchase of a piece of land (S$6.4 million) for modular construction development purpose in Gold Coast, Australia offset by the 1Q17 depreciation expense of fixed assets of S$1.4 million.

Current assets decreased S$12 million from S$108.2 million as at 31 December 2017 to S$96.2 million as at 31 March 2018. This was mainly due to:

  1. Lower cash and cash equivalents of S$8.0 million for the purchase of the land for modular construction development purpose in Gold Coast, Australia of S$6.4 milion and fixed assets of S$1.3 million; and
  2. Lower other receivables of S$3.9 million largely from S$2.5 million loans previously extended to non-controlling interests for the Bangladesh solar project for progress capital call for the project has been settled via acquiring 10% of non-controlling shareholder interests in the project at cost as announced on 8 March 2018.

Current liabilities of the Group decreased S$3.5 million from S$39.8 million as at 31 December 2017 to S$36.3 million as at 31 March 2018. This was mainly due to:

  1. Decrease in other payables of S$2.5 million relating to the non-controlling shareholder interests in the Bangladesh solar project from the acquisition of additional 10% equity interests by the Group as mentioned above;
  2. Settlement of trade payables and accruals of S$3.6 million; and
  3. Offset partially by increase in term loan from the drawdown of construction loan to finance the redevelopment of Hetat factory and revolving credit line to repay trust receipts due to banks and increase owing to associate of S$0.8 million.

Non-current liabilities of the Group remained flat at S$7.4 million as at 31 March 2018.

Shareholders' equity decreased to S$201.5 million as at 31 March 2018 from S$203.3 million as at 31 December 2017. The decrease was largely attributed to the loss for the Group in the first quarter.

Non-controlling interests of S$1.8 million relates to the minority interests portion of Solar Energy segment and the acquired subsidiary of TLC JSC Vietnam.

During 1Q18, the Group recorded a net cash outflow of S$2.8 million from operating activities after using S$2.9 million for changes in working capital largely driven by working capital used for the modular construction and solar projects currently in progress. Net cash used in investing activities amounted to S$7.7 million in 1Q18 mainly for the purchase of land for modular construction development purpose in Gold Coast, Australia of S$6.4 million and the balance for fixed assets. Net cash generated from financing activities in 1Q18 was S$2.7 million derived from drawdown of bank loans for the redevelopment of Hetat factory and office building. After taking into account net foreign currency translation adjustments, the Group recorded a net decrease in cash equivalents of S$8.0 million to S$41.1 million for 1Q18

Commentary

As mentioned in the recent Annual Report 2017, and the previous results announcement, we remain optimistic that FY 2018 financial performance to be better than FY 2017 as the new twin engines, namely modular construction and solar energy are gaining traction and coming out from their development phase.

For the Engineering & Construction segment (E&C), the turnkey Cosa Hotel project is on course to deliver in 2H18 which the favourable contribution will only be recognized in 2H18 upon the certificate of completion issued being a design and build turnkey project. In addition, with a growing order book for our modular construction technology, as announced, we expect to see improvement in results for the E&C segment from 2H18. On 2 May 2018, the Group announced the securing of two new modular construction contracts in New Zealand to favourably contribute to the segment results for FY 2019. With increased acceptance for modular construction technology, the Group will endeavour to continue to secure more contracts to boost its order books.

For the Group's Corrosion Prevention (CP) business, with some confidence seen returning to the marine and offshore sectors boosted by the gradual recovery of oil prices, we remain cautiously optimistic that our CP business will improve over last year. The Group will continue its cost rationalisation exercise and enhance productivity to maintain an appropriate and efficient cost structure while it focuses on expanding and diversifying its customer base.

For the Group's solar energy segment, the momentum of securing new orders for roof-top solar projects in Singapore has gained pace and we remain cautiously optimistic that this segment will be profitable for the Group in FY 2018. The Group will continue to focus on developing the 50MW Bangladesh solar farm project to target to commission in 1H2019.