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UNAUDITED FIRST QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2018

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UNAUDITED FIRST QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2018

Income Statement

NM: Not Meaningful

Comprehensive Income

NM: Not Meaningful

Balance Sheet

 

Review of Income Statement of the Group

First Quarter FY2019 ("Q1 FY2019") vs First Quarter FY2018 ("Q1 FY2018")

Revenue

Group revenue increased by 18.1% to RMB180.5 million in Q1 FY2019 as compared to RMB152.8 million in Q1 FY2018. The increase in revenue was mainly from higher sales of towercranes by RM27.6 million from RMB107.1 million in Q1 FY2018 to RMB134.7 million in Q1 FY2019. Rental income as well as service income also increased by RMB4.9 million. The increase was partly offset by lower sales of components and parts of RMB4.9 million.

Sales in PRC has increased with revenue recorded at RMB107.8 million in Q1 FY2019 as compared to RMB71.1 million in Q1 FY2018 as demand increased for medium sized towercranes amidst growth in the construction sector. Rental income for the PRC has also increased mainly in the used of large sized towercranes for infrastructure projects. Revenue in Middle East & Others has also up by RMB15.3 million. The increase was offset by the decrease in Asia (outside the PRC) and the USA & Europe which was down by RMB19.7 million and RMB4.8 million respectively in Q1 FY2019 as compared to Q1 FY2018.

With the improvement in the PRC sales, it formed the bulk of the Group's sales at 59.8% in Q1 FY2019.

Gross profit and gross profit margin

Despite the increase in revenue, gross profit decreased by 2.8% to RMB43.0 million in Q1 FY2019 from RMB44.2 million in Q1 FY2018 amidst keen price competition resulting in lower margins from sales of towercranes, coupled with higher steel material cost.

Accordingly, average gross profit margin decreased to 23.8% in Q1 FY2019 from 28.9% in Q1 FY2018.

Other income

The increase in other income to RMB1.8 million in Q1 FY2019 as compared to RMB0.4 million in Q1 FY2018 was mainly due to sub-rental of premises income from Hong Kong of RMB0.9 million and compensation income from subcontractors resulted from non-conformance in quality for goods delivered of RMB0.6 million. The increase was partly offset by lower interest income of RMB0.2 million.

Operating expenses

Total operating expenses slightly increased 0.7% to RMB36.6 million in Q1 FY2019 as compared to RMB36.3 million in Q1 FY2018.

Distribution costs increased 24.4% to RMB15.3 million in Q1 FY2019 as compared to RMB12.3 million in Q1 FY2018 mainly due to higher freight and transportation charges in line with higher sales. The increase is further explained by higher premises rental in Hong Kong as it incurred double rental cost both for new and old warehouse and office during the transitional period of relocation.

Administrative expenses slightly decreased 3.0% to RMB18.8 million in Q1 FY2019 as compared to RMB19.4 million in Q1 FY2018 mainly due to lower depreciation expenses.

Other operating expenses reported a credit balance of RMB2.0 million in Q1 FY2019 from a debit balance of RMB1.0 million in Q1 FY2018. The credit balance in Q1 FY2019 was mainly from exchange gain of RMB2.2 million whilst it reported an exchange loss of RMB0.4 million in Q1 FY2018. The differences was also due to lower bank charges of RMB0.2 million in Q1 FY2019 as compared to RMB0.6 million in Q1 FY2018.

The exchange gain arose mainly from:

  1. the strengthening 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 strengthening 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 strengthening of USD against SGD due to net USD assets in the Singapore subsidiary's book.

In line with the higher average borrowing and higher effective interest rate, finance costs increased 21.2% to RMB4.4 million in Q1 FY2019 as compared to RMB3.6 million in Q1 FY2018.

Taxation

Income tax expense increased 91.1% to RMB2.3 million in Q1 FY2019 as compared to RMB1.2 million in Q1 FY2018 despite profit before taxation for the two periods reported was comparable. This is mainly due to losses from one of the China subsidiary.

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

The Group recorded a profit before taxation of RMB8.2 million in Q1 FY2019 as compared to RMB8.3 million in Q1 FY2018 was mainly due to lower gross profit offset by higher operating expenses.

Net profit attributable to equity holders of the Company increased 25.8% to RMB8.0 million in Q1 FY2019 from RMB6.4 million mainly due to higher losses attributable to non-controlling interest.

Review Of Financial Position Of The Group

Non-current Assets

Non-current assets increased by RMB13.8 million to RMB541.0 million as at 30 June 2018 arises from net additions in property, plant and equipment mainly due to increase in rental fleet.

Deferred tax assets also increased by RMB1.0 million. Deferred tax assets arose mainly from provisions and elimination of unrealised profits in intragroup sales.

Current Assets

Current assets increased by RMB42.4 million to RMB961.4 million as at 30 June 2018 mainly due to higher inventory, higher cash and cash equivalent and higher amount owing by related parties. This was partly offset by lower trade and other receivables.

Inventories increased by RMB18.9 million for delivery due in the second quarter FY2019.

Amount owing by related parties increased by RMB6.4 million to RMB77.6 million as at 30 June 2018 due to higher sales over repayments from related parties.

Trade and other receivables decreased by RMB17.1 million to RMB375.7 million as at 30 June 2018 due to higher collections over sales and lower advances to suppliers in Q1 FY2019.

Non-current Liabilities

Non-current liabilities increased by RMB0.6 million to RMB53.2 million as at 30 June 2018 as compared to RMB52.6 million as at 31 March 2018 mainly due to increase in deferred tax liabilities, partly offset by lower trade and other payables.

Current Liabilities

Current liabilities increased by RM43.4 million to RMB748.1 million as at 30 June 2018 as compared to RMB704.7 million as at 31 March 2018 mainly due to increase in trade and other payables, borrowings amount owing to related parties and amount owing to a corporate shareholder of a subsidiary. The increase was partly offset by lower tax payable.

Trade and other payables increased by RMB28.7 million mainly due to higher purchases made during the period and higher advances from customers.

Amount owing to related parties and amount owing to a corporate shareholder increased by RMB1.6 million and RMB1.3million respectively due to higher transactions over repayments during the period.

Total Equity

As at 30 June 2018, the Group's total equity amounted to RMB701.2 million. The increase was mainly due to total comprehensive income of RMB12.2 million for Q1 FY2019.

Review Of Cashflow Statement

Q1 FY2019 vs Q1 FY2018

The Group reported a net increase in cash and cash equivalents amounting to RMB11.1 million in Q1 FY2019 mainly due to:

  1. Net cash generated from operating activities in Q1 FY2019 of RMB22.2 million resulted mainly from operating profit before working capital changes, decrease in operating receivables and increase in operating payables, partly offset by increase in inventories;
     
  2. Net cash generated from investing activities of RMB0.5 million mainly from proceed from disposal of property, plant and equipment of in conjunction with the shifting of the Group's Hong Kong office and warehouse, partly offset by purchase of machineries during the period; and
     
  3. Net cash used in financing activities of RMB11.6 million mainly from higher restricted bank balances and repayment to related parties, partly offset by net proceeds of bank borrowings and finance lease creditors.

Commentary

China's economy expanded 6.7 percent year-on-year in the second quarter of 2018 slowing only marginally from 6.8 percent growth in the previous three quarters as Beijing's crackdown on debt risks crimped activity, while June factory output growth weakened to a two-year low is a worrying sign as a heated trade war with the United States threatens to dampen exports.

Infrastructure investment in China is picking up on the back of regional development initiatives outlined by the 13th Five-Year Plan and the Xiongan economic zone. China's infrastructure funding has fueled demand for buildings material, from cements to steel and all others. Nevertheless, the Group remains cautious in view of the rising material and 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.

The Group is currently looking into consolidating its Beijing's manufacturing plant to Fushun as part of the Group's effort to streamline its operations and to improve overall management and cost efficiency.