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UNAUDITED THIRD QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2017

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UNAUDITED THIRD QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2017

Income Statement

Comprehensive Income

Balance Sheet

Review of Income Statement of the Group

Third Quarter FY2018 (“Q3 FY2018”) vs Third Quarter FY2017 (“Q3 FY2017”)

Revenue

Group revenue increased 19.3% to RMB138.8 million in Q3 FY2018 as compared to RMB116.4 million in Q3 FY2017. The increase resulted mainly from higher sales in towercranes of RMB19.7 million, higher services income of RMB6.8 million, and higher sales of components and accessories of RMB0.3 million, partly offset by lower rental income of RMB4.4 million.

All sales region except for the USA & Europe has reported a higher revenue in Q3 FY2018 as compared to Q3 FY2017. Asia (outside the PRC) has increased by 28.5% to RMB55.4 million amidst higher demand of medium and large size towercranes. Revenue in the PRC increased 16.8% from RMB51.2 million in Q3 FY2017 to RMB59.8 million in Q3 FY2018 resulted mainly from higher demands in small and medium size towercranes and higher rental income in Q3 FY2018. Revenue in Middle East & Others has also up by RMB8.7 million. The increase was offset by the decrease in the USA & Europe which was down by RMB7.2 million.

Overall, PRC sales and Asia (outside the PRC) contributed 43.1% and 39.9% respectively of the Group revenue.

Gross profit and gross profit margin

Gross profit decreased 2.4% to RMB37.5 million in Q3 FY2018 from RMB38.4 million in Q3 FY2017 despite higher revenue reported. The decrease was mainly due to lower margin in Q3 FY2018.

Average gross profit margin decreased to 27.0% in Q3 FY2018 from 33.0% in Q3 FY2017. The decrease was mainly attributable to more sales of small and medium sizes towercranes which generates lower gross margin and lower rental income which generates higher gross margin.

Other income

Other income decreased to RMB0.7 million in Q3 FY2018 as compared to RMB1.1 million in Q3 FY2017 was mainly due to higher gain on disposal of motor vehicles for the amount of RMB0.4 million in Q3 FY2017.

Operating expenses

Total operating expenses decreased 8.0% to RMB36.0 million in Q3 FY2018 as compared to RMB39.1 million in Q3 FY2017.

Distribution costs decreased 6.2% to RMB11.9 million in Q3 FY2018 as compared to RMB12.7 million in Q3 FY2017 mainly due to lower exhibition expenses incurred for the participation in the bi-annual Bauma 2016 exhibition in Q3 FY2017.

Administrative expenses slightly decreased 2.9% to RMB21.3 million in Q3 FY2018 as compared to RMB21.9 million in Q3 FY2017 largely due to lower depreciation cost and lower transportation cost, partly offset by higher employee benefit costs. Lower transportation costs was mainly due to the participation in the bi-annual Bauma 2016 exhibition in Q3 FY2017.

Other operating expenses reported a credit balance of RMB1.6 million in Q3 FY2018 from a debit balance of RMB0.2 million in Q3 FY2017. The credit balance in Q3 FY2018 was due to reversal of impairment of trade receivables for the amount of RMB2.6 million, partly offset by exchange loss of RMB0.7 million and bank charges of RMB0.3 million. In Q3 FY2018, the Group had recovered trade receivables previously provided for in FY2016, mainly consist of:

  1. RMB1.9 million by recalling two units of tower cranes; and

  2. RMB0.5 million by court order:

The exchange loss arose mainly from:

  1. the weakening of Singapore Dollars (“SGD”) and Hong Kong Dollars (“HKD”) against Chinese Yuan (“RMB”) due to net RMB liabilities in the Singapore subsidiary’s book and Hong Kong subsidiary’s book; and

  2. the weakening of HKD against RMB and SGD due to net HKD assets in the Company’s book and the Singapore subsidiary’s book; and

  3. the weakening of USD against SGD due to net USD assets in the Singapore subsidiary’s book.

Finance costs slightly increased 1.7% to RMB4.4 million in Q3 FY2018 as compared to RMB4.3 million in Q3 FY2017 as a result of higher average interest rate.

Taxation

Credit balance of income tax expense decreased to RMB0.3 million in Q3 FY2018 as compared to RMB2.0 million in Q3 FY2017. Credit balance of tax expense arose mainly from utilization of unabsorbed tax losses previously not recognized as deferred tax asset.

Profit before taxation and Net profit attributable to equity holders of the Company

Profit before taxation increased to RMB2.2 million in Q3 FY2018 as compare to RMB0.4 million in Q3 FY2017 despite lower gross profit and lower other income. This was mainly due to lower total operating expenses in the quarter reported.

Net profit attributable to equity holders of the Company decreased to RMB0.3 million in Q3 FY2018 as compared to RMB0.4 million in Q3 FY2017. This was mainly due to higher net profit attributable to non-controlling interests of RMB2.3 million in Q3 FY2018 as compared to RMB1.9 million in Q3 FY2017.

Nine Months FY2018 (“9M FY2018”) vs Nine Months FY2017 (“9M FY2017”)

Revenue

Group revenue slightly increased 2.1% to RMB465.1 million in 9M FY2018, as compared to RMB455.5 million in 9M FY2017. The increase resulted mainly from higher towercranes sales of RMB21.8 million, partly offset by lower sales in components and accessories of RMB6.7 million, lower rental income of RMB2.1 million and lower services income of RMB3.4 million.

Middle East & others increased 135.3% from RMB20.8 million in 9M FY2017 to RMB48.8 million in 9M FY2018 with higher quantity of towercranes delivered.

Asia (outside the PRC) also increased RMB6.4 million to RMB181.1 million in 9M FY2018 from RMB174.7 million in 9M FY2017 mainly contributed by sales of higher lifting capacity towercranes in adoption of Prefabricated Prefinished Volumetric Construction (PPVC) method. The increase was offset by lower rental income and service income in Hong Kong and Macau operations as a result of weaker demand.

Revenue in the PRC and USA & Europe decreased by RMB21.0 million and RMB4.0 million respectively in 9M FY2018 as compared to 9M FY2017. Towercranes revenue in the PRC has seen a decrease partly mitigated by the Company engaging into more leasing activities for mega-sized towercranes in lieu of outright sales. This explained the higher rental income reported in 9M FY2018. Nevertheless, PRC sales still made the largest turnover contribution to the Group, amounting to 46.2% of revenue in 9M FY2018.

Gross profit and gross profit margin

Gross profit decreased 9.7% to RMB141.1 million in 9M FY2018 from RMB156.3 million in 9M FY2017. The decrease was due to lower margin in 9M FY2018.

Average gross profit margin decreased to 30.3% in 9M FY2018 from 34.3% in 9M FY2017. The decrease was mainly attributable to more sales of small and medium sizes towercranes which generates lower gross margin and lower rental income which generates higher gross margin. The decrease was also due to lower margin from service income in Macau as more dismantling services was provided in 9M FY2017. However, there were no such services in 9M FY2018.

Other income

Other income decreased to RMB2.4 million in 9M FY2018 as compared to RMB3.9 million in 9M FY2017 was mainly due to compensation income from customers of RMB1.9 million in 9M FY2017.

Operating expenses

Total operating expenses decreased 10.0% to RMB113.2 million in 9M FY2018 as compared to RMB125.8 million in 9M FY2017.

Distribution costs decreased 11.1% to RMB37.6 million in 9M FY2018 as compared to RMB42.2 million in 9M FY2017 mainly due to lower sales of large and mega sized towercranes in 9M FY2018 and exhibition expenses for the participation in the bi-annual Bauma 2016 exhibition in 9M FY2017.

Administrative expenses decreased 5.8% to RMB60.1 million in 9M FY2018 as compared to RMB63.8 million in 9M FY2017 largely due to lower depreciation cost and lower transportation cost. Lower transportation costs was also due to the participation in the bi-annual Bauma 2016 exhibition in 9M FY2017.

Other operating expenses decreased to RMB3.0 million in 9M FY2018 from RMB6.2 million in 9M FY2017. A net reversal of doubtful debts of RMB0.3 million was made in 9M FY2018 as compared to a provision of RMB4.0 million made in 9M FY2017. The decrease was partly offset by higher exchange losses of RMB2.2 million in 9M FY2018 as compared to RMB0.9 million in 9M FY2017.

The net reversal of impairment of trade receivables in 9M FY2018 mainly refer to:

  1. RMB1.9 million recovered by recalling two units of tower cranes provided for in FY2016; and

  2. RMB0.5 million recovered by court order provided for in FY2016; offset by

  3. RMB2.2 million provision made for a Beijing construction company which was long outstanding for more than three years.

The exchange loss arose mainly from:

  1. the weakening of SGD and HKD against RMB due to net RMB liabilities in the Singapore subsidiary’s book and Hong Kong subsidiary’s book; and

  2. the weakening of HKD against RMB and SGD due to net HKD assets in the Company’s book and the Singapore subsidiary’s book; and

  3. the weakening of USD against SGD due to net USD assets in the Singapore subsidiary’s book.

In line with the lower average borrowing, finance costs decreased 7.8% to RMB12.5 million in 9M FY2018 as compared to RMB13.5 million in 9M FY2017.

Taxation

Income tax expense decreased to RMB5.5 million in 9M FY2018 as compared to RMB6.1 million in 9M FY2017 in line with lower profit for the financial period.

Profit before taxation and Net profit attributable to equity holders of the Company

The Group reported a lower profit before taxation of RMB30.3 million in 9M FY2018 as compared to RMB34.5 million in 9M FY2017 was mainly due to lower gross profit, partly offset by lower operating expenses.

Net profit attributable to equity holders of the Company marginally increased to RMB22.8 million in 9M FY2018 as compared to RMB22.5 million in 9M FY2017. This was mainly due to lower profits attributable to non-controlling interests and lower tax expense, partly offset by lower profit before taxation.

Review Of Financial Position Of The Group

Non-current Assets

Non-current assets decreased by RMB23.6 million to RMB557.0 million as at 31 December 2017 mainly due to depreciation and amortization expenses charged, partly offset by higher deferred cost for the financial period.

Deferred costs related to the corresponding non-current portion cost of sales relating to revenue deferred (See Note on deferred income below).

Deferred tax assets arose mainly from deferred income, provisions and elimination of unrealised profits in intragroup sales.

Current Assets

Current assets increased by RMB7.3 million to RMB857.4 million as at 31 December 2017 mainly due to higher trade and other receivables, higher amount owing by related parties and higher deferred cost, partly offset by lower inventory and cash and cash equivalents (see Note on Review on cash flow statement below).

Trade and other receivables increased by RMB57.0 million to RMB349.2 million as at 31 December 2017 due to timing of sales and slower collections in the PRC.

Inventories decreased by RMB11.6 million to RMB306.1 million as at 31 December 2017. Higher inventory level are normally maintained for first half of the year due to the seasonal cycle of demand.

Deferred costs related to the corresponding current portion cost of sales relating to revenue deferred (See Note on deferred income below).

Non-current Liabilities

Non-current liabilities increased by RMB8.5 million to RMB69.6 million as at 31 December 2017 as compared to RMB61.1 million as at 31 March 2017 mainly due to increase in deferred income (See Note on deferred income below).

Current Liabilities

Current liabilities decreased by RMB37.7 million to RMB654.5 million as at 31 December 2017 mainly due to repayment of borrowings and amount owing to/advances from related parties and lower trade and other payables, partly offset by higher amount owing to a corporate shareholder of a subsidiary.

Trade and other payables decreased by RMB10.1 million in line with lower purchase as lower inventory level to be kept due to seasonal cycle demand.

Amount owing to related parties which was interest-free loan, was from related parties to Fushun Yongmao for the purpose of increasing the working capital of the Group.

Deferred income included RMB32.8 million of revenue deferred due to uncertainty in the timing of the consideration for the delivery of goods made to the customer. Owing to the uncertainty, the amount of the unpaid sum owed by the customer to the financial institution is deferred and recognised as revenue when the uncertainty is removed. The deferred costs, as mentioned under non-current and current assets above, related to the amount carried in the statement of financial position to the extent that revenue has been deferred. The increase in deferred income, from RMB18.1 million as at 31 March 2017, was mainly due to the increase in such deferred sales partly offset by repayment by customers to financial institutions.

Total Equity

As at 31 December 2017, the Group’s total equity amounted to RMB690.4 million. The increase was mainly due to net profit of RMB24.8 million, partly offset by other comprehensive expense of RMB7.6 million for 9M FY2018.

Review Of Cashflow Statement

Q3 FY2018 vs Q3 FY2017

The Group reported a net decrease in cash and cash equivalents amounting to RMB5.8 million in Q3 FY2018 mainly due to:

  1. Net cash generated from operating activities in Q3 FY2018 of RMB8.3 million resulted mainly from operating profit before working capital changes, decrease in operating receivables and increase in deferred income, partly offset by decrease in operating payables, increase in deferred cost, increase in inventory, as well as interest and taxes paid;

  2. Net cash used in investing activities of RMB2.6 million mainly from purchase of machineries and motor vehicles; and

  3. Net cash used in financing activities of RMB11.5 million mainly from net repayment of bank borrowings and finance lease creditors and also repayment to a director, partly offset by lower restricted bank balances.

9M FY2018 vs 9M FY2017

The Group reported a net increase in cash and cash equivalents amounting to RMB0.2 million in 9M FY2018 mainly due to:

  1. Net cash used in operating activities in 9M FY2018 of RMB8.0 million resulted mainly from operating profit before working capital changes and increase in deferred income, partly offset by increase in operating receivables, decrease in operating payables, increase in deferred cost, as well as interest and taxes paid;

  2. Net cash used in investing activities of RMB2.9 million mainly from purchases of machinery and motor vehicles, partly offset by interest received; and

  3. Net cash generated from financing activities of RMB11.2 million mainly from lower restricted bank balances and advances from a director, offset by net repayment of bank borrowings and finance lease creditors, repayment to related parties and dividend paid to shareholders of the Company.

Commentary

China’s economy expanded 6.8 percent year-on-year in the fourth quarter of 2017, the same pace as in the previous period. Growth remained steady and positive as industrial output, retail sales and fixed-asset investment remained strong. The economic growth is also bolstered by global recovery where exports have been quite buoyant vis-a-vis last year. However, the economic growth may cool in coming months as government crack-down on financial risks thereby raising borrowing costs for businesses.

While resale residential property sector slowed, infrastructure investment is picking up on the back of regional development initiatives outlined by the 13th Five-Year Plan and the Xiongan economic zone. China pouring of funds into infrastructure has fueled demand for buildings material, from cements to steel and all others. Nevertheless, the Group remains cautious in view of the rising business cost.

Demand for towercranes in other overseas markets is mixed with markets such as Singapore, Taiwan and Middle East likely to see a better demand in the replacement market whereas markets like Macau remain challenging.