See Hup Seng

SHS Holdings Ltd

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2Q2018 Results Ended 30 June 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

2Q18 Overview

For the second quarter ended 30 June 2018 ("2Q18"), the Group recorded a 13% drop in revenue to S$8.5 million and a net loss attributable to equity holders of S$752,000, 19% improvement over the loss of S$926,000 in 2Q17.

For the first half ended 30 June 2018 ("1H18"), the Group recorded a 39% jumped in revenue to S$21.9 million and a net loss attributable to equity holders of S$2.0 million. This compares with a net profit attributable to equity holders of S$2.2 a year ago.

As at 30 June 2018, the Group's total equity was S$199.7 million from S$203.3 million as at 31 December 2017. The Group has cash and cash equivalent balance of S$43.9 million. The Group is in a net cash position with low debt-to-total equity ratio of 11.1%.

Revenue from Continuing Operations


Revenue From Continuing Operations

The Group's revenue fell 13% to S$8.5 million in 2Q18, compared with S$10 million in the previous corresponding period driven by shortfalls from the E&C segment.

E&C segment

Revenue for E&C segment fell 49% year-on-year to S$3.2 million in 2Q18 from S$6.3 million in 2Q17 due to the steel engineering segment. This is due to the absence of recognition of variation orders in 2Q17 from the completion of projects coupled with a one-off revenue adjustment in 2Q18 on a project. The Modular segment recorded a higher revenue in 2Q18 against 2Q17 for the delivery of pre-fabricated bathroom units for the Lendlease Paya Lebar condominium project.

For 1H18, revenue for E&C segment rose 26% against 1H17 due to timing as there were more progress in the delivery of larger scale projects especially for the Engineering segment in the first quarter.

Solar Energy segment

Revenue for the Solar Energy segment rose to S$1.8 million in 2Q18 from S$0.15 million in 2Q17 and also jumped to S$3.0 million in 1H18 from S$0.4 million in 1H17 as it starts to deliver for delayed projects in 2017 and new contracts secured for 2018.

CP segment

Revenue for CP segment increased by 6% to S$3.4 million in 2Q18 from S$3.2 million in 2Q17 largely driven by increase orders from the plant operations. With improvement in oil prices we are seeing a slow return of confidence and resultant increase in orders of the marine and offshore sectors in particular new vessel builds which our plant operations are dependent on coupled with our success to secure construction and infrastructure projects placing less reliance on the marine and offshore sectors. For the same reasons, revenue for the CP segment in 1H18 rose 19% against 1H17.

Gross Profit and Gross Margin

Gross Profit From Continuing Operations

Gross Profit From Continuing Operations

For 2Q18, the Group's gross profit dropped 38% year-on-year to S$1.3 million, compared with S$2.1 million in 2Q17 and for 1H18, Group's gross profit decreased 15% to S$3.1 million from S$3.7 million in 1H17. The decrease was mainly attributable to the E&C segment.

E&C segment

For 2Q18, gross profit for E&C segment decreased 98% from S$1.4 million in 2Q17 to S$32,000 in 2Q18. This is driven by the steel engineering projects on hand which are facing margin compression from the lackluster environment, cost overruns on some projects and the one-off revenue adjustment in 2Q18. Similarly, for 1H18, gross profit for E&C segment decreased 72% against 1H17 as a result.

Solar Energy segment

For 2Q18 and 1H18, a gross profit was registered for the Solar Energy Segment against an operating loss in the previous year. The significant improvement in gross profit for the solar energy segment is driven by the higher number of projects being executed in 2018 as explained above.

CP segment

CP segment's gross profit jumped significantly to S$0.9 million in 2Q18 from S$0.7 million in 2Q17 and S$1.7 million in 1H18 from S$0.8 million in 1H17 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% from 15.7% a year ago.

Other Income

Other income increased 146% year-on-year from S$0.3 million in 2Q17 to S$0.8 million in 2Q18 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. Similarly for the same reasons, Other income in 1H18 increased 105% to S$1.3 million from S$0.6 million in 1H17.

Selling, Distribution, Administrative and Other Operating Expenses

Expenses and Finance Costs

Total OPEX decreased by 2% year-on-year from S$3.6 million in 2Q17 to S$3.5 million in 2Q18, due to a reversal of 1Q18 unrealized exchange loss of S$0.7 million from the favorable movement of the USD exchange rate in 2Q18, a key currency for the solar projects in Bangladesh and Vietnam and for the modular business which helped offset higher other operating expenses from the modular construction business of the E&C segment during the development phase of the business.

Similarly against 1H17, Total OPEX increased 4% in 1H18 as included in 1H17 was unrealized exchange loss of S$0.7 million against an insignificant impact in 1H18. Excluding the foreign exchange impact, total Opex would have increased 15% due to high selling and administrative expenses incurred for the modular construction business in the E&C segment during the development phase of the business.

Selling and distribution expenses increased by 169% to S$388,000 in 2Q18 and increased 107% in 1H18, on higher travelling and business development expenses as the Group extends its operations in Asia in particular its modular business in the Australasia region.

Administrative expenses were higher by 4% to S$2.3 million in 2Q18 on higher staff related expenses incurred for the development of the modular construction business of the E&C segment. For 1H18, further cost rationalization measures and write backs of provisions no longer required helped reduced Administrative expenses to 6% below 1H17.

Other operating expenses fell 34% to S$0.8 million in 2Q18 on reversal of 1Q18 foreign exchange loss from the favorable US$ rate movement as explained above. For 1H18, other operating expenses increased 7% to S$2.8 million notwithstanding that 1H17 included an unrealized foreign exchange loss of S$0.7million due to higher operating expenses incurred for the modular construction business during its development phase.

Finance Costs

Finance costs were higher at S$160,000 in 2Q18 and S$206,000 in 1H18 due largely to higher bank borrowings for the redevelopment of the Hetat factory and office building.

Share of Associates' Results

Share of gain of associated companies was reported in 2Q18 and 1H18 against a share of loss against the corresponding periods last year due to the reversal of excess provisions of development expenses in 2018 coupled with 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$5.8 million from S$145.3 million as at 31 December 2017 to S$153.4 million as at 30 June 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, increased in other receivable of $1.1 million from prepaid development costs of the Bangladesh and Vietnam solar projects offset by the 1H18 depreciation expense of fixed assets of S$2.4 million.

Current assets decreased S$14.7 million from S$108.2 million as at 31 December 2017 to S$93.6 million as at 30 June 2018. This was mainly due to:

  1. Lower cash and cash equivalents of S$5.2 million for the purchase of the land for modular construction development purpose in Gold Coast, Australia of S$6.4m;
  2. Lower trade receivables of S$3.5m from collections largely from E&C segment including progress payment received from the COSA modular project in Christchurch, New Zealand;
  3. Lower other receivables of S$3.3 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;
  4. S$2.6m from repayment of loan received from a joint venture.

Current liabilities of the Group decreased S$3.6 million from S$39.8 million as at 31 December 2017 to S$36.3 million as at 30 June 2018. This was mainly due to:

  1. Settlement of trade payables and accruals of S$3.2 million largely from the EC segment;
  2. Decrease in other payables of S$3.8 million relating largely 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
  3. Offset partially by increase in term loan of S$2.3 million from the drawdown of construction loan to finance the redevelopment of Hetat factory and revolving credit line to repay trust receipts due to banks.

Non-current liabilities of the Group remained flat at S$7.5 million as at 30 June 2018.

Shareholders' equity decreased to S$199.7 million as at 30 June 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 half and the dividends paid during the year.

Non-controlling interests of S$1.2 million relates to the minority interests portion of Solar Energy segment and the acquired subsidiary of TLC JSC Vietnam.

Commentary

We remains 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. However, FY 2018 is expected to report a loss as the contributions from the projects secured especially for the modular construction segment will substantially accrue only from FY 2019 onwards when the projects are delivered.

For the Engineering & Construction segment (E&C), the Cosa Hotel project is on course to deliver the turnkey project in 2H18 which the favourable contribution will only be recognized in 4Q18 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 and those progressing in the pipeline, we expect to see improvement in results for the E&C segment that is attributable to the modular construction segment from 2H18 and more so from FY 2019.

For the Group's solar energy segment, the momentum of securing new orders for roof-top solar projects in Singapore has gained paced 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.

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.