Extracted from Annual Report 2022
The Year in Review
Tenacity and adversity are old foes.
The financial year 2022 (“FY2022”) started out on a positive note for the PRC, riding on the gradual recovery over the past financial year 2021 (“FY2021”) and enjoying a strong GDP growth that exceeded expectations for the first quarter of 2022. However, the resurgence of COVID-19 in the last quarter of the financial year had significantly affected our performance in the second half of FY2022.
Outside of the PRC, our other business markets continue to make decent recovery from the economic slowdown, reflected by the improvement in their performance from the previous reporting period, further cushioning Yongmao from the PRC's slowdown due to the COVID-19 outbreak towards the end of FY2022. In particular, Singapore and Hong Kong, our major markets outside the mainland PRC, continue to move forward with their recovery from the pandemic. Despite the challenges, Yongmao has remained committed to staying resilient and vigilant to maintain our position as one of the leading player in the tower crane business.
Over the past two financial years, the COVID-19 pandemic has caused much disruptions in global economic activity, which in turn led to inconsistent demand and supply of cranes. As the world adapted to living with COVID-19 and vaccination schemes were rolled out, economies around the world have been gradually picking up the pace in their efforts to return to their pre-pandemic performance levels. As one of the earliest countries to have managed to contain the virus, the PRC had been enjoying business recoveries and our domestic market has been fulfilling delivery backlogs of cranes that had been put on hold, particularly up until the first half of FY2022.
However, the outbreak of the COVID-19 pandemic in the PRC during the second half of FY2022 prompted the government to again impose stay-home orders and movement restrictions to contain the spread of the virus, leading to a decline in business activities. Compared to the performance recorded for 2H2021 with the fulfilment of back-log orders and economic recovery as the pandemic came under control, the PRC market for 2H2022 saw a slowdown in business activities with the new outbreak exacerbated by a sluggish property market.
Another challenge we faced was the extensive increase in freight cost. Cost of shipping a container increased sharply in these two years following March 2020, and remain high into 2022. The pandemic underscored just how crucial the maritime container trade is to the global economy. The COVID-19 upended supply chains. The disruption from lockdowns resulted in a pent-up demand, made worse by shortage of vessels and workers, and created enormous pressure on land and sea transportation. Besides causing delays in getting goods to customers, the cost of delivering the goods surged. While fulfilling our delivery for backlogs crane orders, our freight costs soared in FY2022 as compared to FY2021.
These combined factors have dampened the overall performance for the year despite the continued recovery of our overseas business segments compared to FY2021.
Cushioned by the strong performance in 1HFY2022, year-on-year revenue slightly increased by 8.1% from RMB1,028.0 million in FY2021 to RMB1,111.3 million in FY2022. In tandem with the increase in revenue, gross profit also saw an increase of 20.6% from the RMB255.0 million recorded in FY2021 to RMB307.5 million in FY2022. Similarly, average gross profit margin increased from 24.8% in FY2021 to 27.7% in FY2022, largely due to higher proportions of large and mega size tower cranes and the luffing series of higher sales margin that were sold during the period under review, as well as higher rental income. As a result of the above, net profit attributable to equity holders increased slightly to RMB55.3 million in FY2022 as compared to RMB54.9 million in FY2021.Building on Strength, Establishing Ourselves Within and Outside of the PRC
We continue to establish our reputation and gain foothold with our large and mega size tower cranes through involvement in various landmark projects within and outside of the PRC.
While the resurgence of COVID-19 towards the tail-end of FY2022 damped performance for our PRC segment, Yongmao's cranes were deployed for major infrastructure projects in the country. In Ganzhou City, Jiangxi Province, our STT2630 tower cranes were involved in the Xinfeng Power Plant Project, supported by the National Energy Administration in southern Gansu with the goal of alleviating poverty. Our tower cranes also assisted on numerous major infrastructure project during the year under review. To name a few, our STL2400C, STL1000C, STL760 are taking part in the China Hangzhou West Railway Station Project (中国杭州西站项目); STT2830 in Shaanxi Fugu Qingshuichuan Power Plant Project (陕西福谷清水川电厂项目); STT2200 in Dalian Waste Incineration Power Plant Project (大连垃圾焚烧电厂项目); 11 units of STT603 tower cranes in Phase IV expansion project of Guangdong Canton Fair Exhibition Hall (广东广交会展馆四期扩建项目); and total of 20 units of STT783, STT553, STT323, STT153, STT139 in Guangdong Lufeng Nuclear Power Station (广东陆丰核电站).
Beyond the border of the PRC, we continue to establish on our market focusing of the large and mega size tower cranes. As mentioned in the previous year, our largest luffing tower crane to-date, STL4200 is to be delivered to the Middle East in the second half of 2021. We are pleased to share that two units of STL4200 with lifting capacity of 100t mounted on travelling chassis together with two units of STL2400 lifting capacity of 80t on static fixed bases were delivered to the construction site of the Dubai Waste-to-Energy plant in the United Arab Emirates. The plant, upon completion, is expected to be one of the largest of its kind in the world, processing 1.9 million tonnes of waste per year and able to generate 200 megawatts of sustainable electricity.
Our major markets outside of the mainland PRC, namely Singapore and Hong Kong, have been getting back on track with their construction activities and projects which had previously been put on hold due to COVID-19. With the pandemic coming largely under control following the rollout of national vaccinations programmes, several projects have been allowed to resume even if activity has not returned to pre-pandemic levels yet. The resumption of extensive government projects such as Build-To-Order (BTO) flats in Singapore and both infrastructure and residential projects in Hong Kong drove the demand for and utilisation of our cranes.
In Hong Kong, there has been an increase in the adoption of modular integrated construction (“MiC”), an innovative and emerging building technology which involves on-site assembly and installation of building blocks which had been pre-completed offsite. The benefits of MiC include increasing productivity by significantly shortening the construction time, which could translate to an increased demand for our cranes for their use in these construction projects. Yongmao delivered our STT1830 tower cranes, currently the biggest cranes in Hong Kong, during the year in review.
We also continued to participate in various industry events and collectives for all matters in relation to the tower crane industry. During the year in review, Yongmao has presided over and participated in the formulation and revision of 32 national, industrial and local standards till date, greatly elevating our level and status within the industry.
Yongmao is honoured to be ranked amongst the top 10 tower cranes manufacturers in the world for the ninth consecutive year. This serves as a huge encouragement to us to build on our strengths and persevere in our path of striving for quality and excellence.Breakthrough into the wind power industry
With China's push for environmental and energy transition policies to achieve the goal of carbon neutrality by 2060, there is huge growth potential for the renewable energy sector as a new driver of growth in the country. To achieve its 2060 carbon neutrality goal, the PRC has been generating an increasing amount of renewable energy in recent years. To maximise its renewable energy output, the country has been making investments into developing long-distance power lines and energy storage systems in order to store and distribute the power for later use. As trends shift towards the need for renewable energy, more infrastructure catered to harnessing such power will continue to drive the market for lifting equipment in their construction projects. The push for such infrastructure will help to drive construction projects, and therefore increase the demand for construction machinery to meet these projects' needs over the long run.
For the year under review, we entered into an agreement with three other parties via our wholly-owned subsidiary, Fushun Yongmao Construction Machinery Co., Ltd (“FSYM”). The new company, Liaoning Xingmao Heavy Industry Co., Ltd. will be engaged in the business of providing sales, rental and installation of Yongmao tower cranes to the wind power industry, providing an opportunity for Yongmao to break into the wind power industry, leverage and establish business relationships for the long-term.
During the financial year, we delivered our first STF2080, a quick-loading boom tower crane that integrates convenient dismantling and assembly with easy usage, thereby lower operating costs. The STF2080 was developed specifically targeting the wind power industry, offering a more cost-efficient and safer alternative to the crawler cranes that were commonly used. Our first STF2080 has serviced in the 31MW wind power project in Hannan, Tianjin Binhai New Area. Coupled with increases in government investments towards renewable energy infrastructure and facilities, prospects are bright for our STF2080 in terms of market sales in the coming years.
Global Business Outlook
While the PRC's GDP growth exceeded expectations of a 4.8% growth year-on-year for the first quarter of 2022, economists have revised these forecasts in light of the plunge in business activities in March and April 2022 due to the restrictions imposed to contain the spread of COVID-19 in certain cities following the country's worst COVID outbreak in two years. The PRC government has proposed a range of new infrastructure projects and is offering support to businesses in the form of infrastructure investment, tax cuts and rebates, consumption boosting measures as well as other relief measures for companies. Such supportive measures are expected to stabilise GDP growth in the face of the headwinds brought about by the COVID-19 resurgence and subsequent lockdowns.
In Singapore and Hong Kong, our other major markets, the COVID-19 pandemic has largely been kept under control and business activities have been returning to almost regular levels as the people learn to live with the virus. Singapore's Housing & Development Board announced the launch of another 17,000 units of BTO flats for 2022, opening up the potential for demand for our cranes to be used in these projects. Similarly, Hong Kong's construction industry forecasts a 2.5% growth for 2022, an increase from its 2.1% growth in 2021. The gradual recovery of Hong Kong's construction activity and its government's funding scheme to promote the construction of transitional housing, as well as the execution of major transportation and housing infrastructure projects, also bode well for our cranes' involvement in such projects.
Nevertheless, with the turbulent backdrop of the global inflationary pressures amid rising food and energy prices and disrupted supply chains following the COVID-19 pandemic, the war between Russia and Ukraine is exacerbating supply and demand tensions which is threatening the global economic growth. To aggravate matters, with interest rates hikes globally to curb inflation, the risk of a global recession looms ever closer. In the face of the impending challenges, it is imperative that we remain vigilant and be prepared to take any necessary and swift actions in response to shifts in the business environment.Dividend and Acknowledgements
In recognition of the continued support from our shareholders despite the uncertainties that have arisen over the past two years, we are proposing a final dividend of 1.0 Singapore cent per ordinary share. This is subject to shareholder approval at the upcoming Annual General Meeting.
On behalf of the Board, I like to thank all stakeholders, our business partners, staff and shareholders, for standing by us through these challenging times. I would also like express my deepest gratitude and appreciation to all healthcare workers around the world for standing on the frontline in the face of each wave of the pandemic. Stay safe, and we look forward to another year of growth and resilience with you.
Sun Zhao Lin