Financials
UNAUDITED SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 SEPTEMBER 2018
Financials Archive
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UNAUDITED SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 SEPTEMBER 2018
Income Statement
NM: Not Meaningful
Comprehensive Income
NM: Not Meaningful
Balance Sheet
Review of Income Statement of the Group
Second Quarter FY2019 ("Q2 FY2019") vs Second Quarter FY2018 ("Q2 FY2018")
Revenue
Group revenue increased by 13.8% to RMB207.5 million in Q2 FY2019 as compared to RMB182.4 million in Q2 FY2018. The increase in revenue was mainly from higher sales of towercranes by RM33.4 million from RMB125.3 million in Q2 FY2018 to RMB158.7 million in Q2 FY2019. It was mainly driven by the demand for large and mega size towercranes in Singapore and the demand for medium size towercranes in the PRC amidst adoption of the Prefabricated Prefinished Volumetric Construction "PPVC" method and the prefabricated construction method respectively.
The increase in revenue from sales of towercranes was partially offset by lower rental & service income and sales of components of RMB7.7 million and RMB0.6 million respectively in Q2 FY2019 as compared to Q2 FY2018. Decrease in rental & service income was mainly due to decrease in Hong Kong and Macau operations as a result of weaker demand.
Revenue in Asia (outside the PRC) rose by 37.1% to RMB88.0 million in Q2 FY2019 as compared to RMB64.1 million in Q2 FY2018. Sales in PRC and the Middle East reported higher by RMB3.1 million and RMB4.3 million respectively in Q2 FY2019 as compared to Q2 FY2018. The increase was offset by the decrease in the USA & Europe which was down by RMB6.1 million.
Overall, the PRC and Asia (outside the PRC) sales contributed to 46.2% and 42.4% respectively of the Group revenue.
Gross profit and gross profit margin
Despite the increase in revenue, gross profit decreased by 9.8% to RMB55.8 million in Q2 FY2019 from RMB61.8 million in Q2 FY2018 amidst keen price competition resulting in lower margins from sales of towercranes, coupled with higher steel material cost. A provision for inventory obsolescence on certain components and accessories of RMB4.5 million was made in Q2 FY2019 as part of the Group's products rationalization exercise to discontinue certain towercranes model with low market demand.
Accordingly, average gross profit margin decreased to 26.9% in Q2 FY2019 from 33.9% in Q2 FY2018.
Other income
Other income increased slightly by RMB0.2 million to RMB1.4 million in Q2 FY2019 as compared to RMB1.2 million in Q2 FY2018 was mainly due to sub-rental of premises income from Hong Kong of RMB0.8 million. The increase was partly offset by lower interest income of RMB0.4 million.
Operating expenses
Total operating expenses increased by 1.2% to RMB41.4 million in Q2 FY2019 as compared to RMB40.9 million in Q2 FY2018.
Distribution costs increased significantly by 45.1% to RMB19.4 million in Q2 FY2019 as compared to RMB13.3 million in Q2 FY2018 mainly due to higher freight and transportation and higher premises rental in Hong Kong. Transportation and freight cost increased is in line with higher sales. Apart from this, the increase was also due to higher sales to Southern China which incurred higher freight and transportation expenses.
Administrative expenses increased 8.2% to RMB21.0 million in Q2 FY2019 as compared to RMB19.4 million in Q2 FY2018 mainly due to higher staff cost and higher product certification fee.
Other operating expenses reported a credit balance of RMB3.2 million in Q2 FY2019 from a debit balance of RMB3.7 million in Q2 FY2018. The credit balance in Q2 FY2019 was mainly from exchange gain of RMB3.3 million whilst it reported an exchange loss of RMB1.1 million in Q2 FY2018. Provision for doubtful debts of RMB2.2 million was made in Q2 FY2018 for a Beijing construction company which was long outstanding for more than three years. There was no provision for doubtful debts made for Q2 FY2019.
The exchange gain arose mainly from:
- 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
- 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
- the strengthening 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 6.0% to RMB4.2 million in Q2 FY2019 as compared to RMB4.5 million in Q2 FY2018.
Taxation
Income tax expense decreased to RMB3.8 million in Q2 FY2019 as compared to RMB5.1 million in Q2 FY2018 in line with lower profit for the financial period.
Profit before taxation and Net profit attributable to equity holders of the Company
The Group recorded a profit before taxation of RMB15.8 million in Q2 FY2019 as compared to RMB22.1 million in Q2 FY2018 was mainly due to lower gross profit and higher operating expenses.
Net profit attributable to equity holders of the Company decreased 25.2% to RMB13.6 million in Q2 FY2019 from RMB18.2 million in Q2 FY2018. This was mainly due to lower net profit for the period.
First Half FY2019 ("1H FY2019") vs First Half FY2018 ("1H FY2018")
Revenue
Group revenue increased by 15.7% to RMB388.0 million in 1H FY2019 as compared to RMB335.2 million in 1H FY2018. The increase in revenue was mainly from higher sales of towercranes by RM61.0 million from RMB232.4 million in 1H FY2018 to RMB293.4 million in 1H FY2019. It was mainly driven by the demand for large and mega size towercranes in Singapore and the demand for medium size towercranes in the PRC amidst adoption of the Prefabricated Prefinished Volumetric Construction "PPVC" method and the prefabricated construction method respectively. Sales to Middle East had also increased with more units being delivered.
The increase in revenue from sales of towercranes was partially offset by lower rental & service income and sales of components of RMB2.9 million and RMB5.5 million respectively in 1H FY2019 as compared to 1H FY2018. Decrease in rental & service income was mainly due to decrease in Hong Kong and Macau operations as a result of weaker demand.
Sales in PRC reported higher by RMB39.9 million to RMB203.7 million in 1H FY2019 as compared to RMB163.8 million in 1H FY2018. Revenue in Middle East & Others and Asia (outside the PRC) has also increased by RMB19.6 million and RMB4.1 million respectively. The increase was offset by the decrease in the USA & Europe which was down by RMB10.9 million.
With the improvement in the PRC sales, it formed the bulk of the Group's sales at 52.5% in 1H FY2019.
Gross profit and gross profit margin
Despite the increase in revenue, gross profit decreased by 6.8% to RMB98.8 million in 1H FY2019 from RMB106.0 million in 1H FY2018 amidst keen price competition resulting in lower margins from sales of towercranes, coupled with higher steel material cost. A provision for inventory obsolescence for certain components and accesories of RMB4.5 million was made in 1H FY2019 as part of the Group's products rationalization exercise to discontinue certain towercranes model with low market demand.
Accordingly, average gross profit margin decreased to 25.5% in 1H FY2019 from 31.6% in 1H FY2018.
Other income
Other income increased by RMB1.6 million to RMB3.2 million in 1H FY2019 as compared to RMB1.6 million in 1H FY2018 was mainly due to sub-rental of premises income from Hong Kong of RMB1.7 million and compensation income from sub-contractors resulted from non-conformance in quality for goods delivered of RMB0.6 million. The increase was partly offset by lower interest income of RMB0.6 million.
Operating expenses
Total operating expenses increased 1.0% to RMB77.9 million in 1H FY2019 as compared to RMB77.2 million in 1H FY2018.
Distribution costs increased 35.1% to RMB34.7 million in 1H FY2019 as compared to RMB25.6 million in 1H FY2018 mainly due to higher freight and transportation and higher premises rental in Hong Kong. Transportation and freight cost increased is in line with higher sales. Apart from this, the increase was also due to higher sales to Southern China which incurred higher freight and transportation expenses. Higher premises rental in Hong Kong incurred arising from the double rental cost both for new and old warehouse and office during the transitional period of relocation in first quarter of the financial year.
Administrative expenses increased 2.6% to RMB39.8 million in 1H FY2019 as compared to RMB38.8 million in 1H FY2018 largely due to higher staff cost, partly offset by lower depreciation.
Other operating expenses reported a credit balance of RMB5.2 million in 1H FY2019 from a debit balance of RMB4.6 million in 1H FY2018. The credit balance in 1H FY2019 was mainly from exchange gain of RMB5.5 million whilst it reported an exchange loss of RMB1.5 million in 1H FY2018. Provision for doubtful debts of RMB2.2 million was made in 1H FY2018 for a Beijing construction company which was long outstanding for more than three years. There was no provision for doubtful debts made for 1H FY2019.
The exchange gain arose mainly from:
- 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
- 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
- the strengthening of USD against SGD due to net USD assets in the Singapore subsidiary's book.
Finance costs increased 6.2% to RMB8.6 million in 1H FY2019 as compared to RMB8.1 million in 1H FY2018 due mainly to higher effective interest rate.
Taxation
Income tax expense for 1H FY2019 was comparable to 1H FY2018 reported at RMB6.1 million and RMB6.3 million respectively despite profit before taxation for 1H FY2019 was lower. 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 reported a lower profit before taxation of RMB24.0 million in 1H FY2019 as compared to RMB30.5 million in 1H FY2018 was mainly due to lower gross profit and higher operating expenses.
Net profit attributable to equity holders of the Company decreased to RMB21.6 million in 1H FY2019 as compared to RMB24.6 million in 1H FY2018. This was mainly due to lower net profit for the period, partly offset by higher losses attributable to non-controlling interest.
REVIEW OF FINANCIAL POSITION OF THE GROUP
Non-current Assets
Non-current assets increased by RMB18.1 million to RMB545.4 million as at 30 September 2018 arises from net additions in property, plant and equipment mainly due to increase in rental fleet.
Deferred tax assets also increased by RMB2.6 million. Deferred tax assets arose mainly from provisions and elimination of unrealised profits in intragroup sales.
Current Assets
Current assets increased by RMB34.1 million to RMB953.0 million as at 30 September 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 RMB21.3 million for delivery due in the third quarter FY2019.
Amount owing by related parties increased by RMB9.5 million to RMB80.7 million as at 30 September 2018 due to higher sales over repayments from related parties.
Trade and other receivables decreased by RMB19.5 million to RMB373.2 million as at 30 September 2018 due to higher collections over sales.
Non-current Liabilities
Non-current liabilities increased by RMB0.5 million to RMB53.1 million as at 30 September 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 RM25.7 million to RMB730.4 million as at 30 September 2018 as compared to RMB704.7 million as at 31 March 2018 mainly due to increase in trade and other payables, amount owing to related parties, amount owing to a corporate shareholder of a subsidiary and higher tax payable. The increase was partly offset by lower borrowings.
Trade and other payables increased by RMB41.5 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 RMB2.4 million respectively due to higher transactions over repayments during the period.
Total Equity
As at 30 September 2018, the Group's total equity amounted to RMB715.0 million. The increase was mainly due to total comprehensive income of RMB30.3 million for 1H FY2019.
REVIEW OF CASH FLOW STATEMENT
Q2 FY2019 vs Q2 FY2018
The Group reported a net decrease in cash and cash equivalents amounting to RMB4.7 million in Q2 FY2019 mainly due to:
- Net cash generated from operating activities in Q2 FY2019 of RMB28.9 million resulted mainly from
operating profit before working capital changes, increase in operating payables and decrease in operating
receivables, partly offset by increase in inventories, interest and taxes paid;
- Net cash used in investing activities of RMB0.3 million mainly from purchase of machineries and office
equipment during the period, partly offset by interest received; and
- Net cash used in financing activities of RMB33.2 million mainly from net repayment of bank borrowings and finance lease creditors, repayment to related parties and dividend paid to shareholders of the company, partly offset by lower restricted bank balances.
1H FY2019 vs 1H FY2018
The Group reported a net increase in cash and cash equivalents amounting to RMB6.5 million in 1H FY2019 mainly due to:
- Net cash generated from operating activities in 1H FY2019 of RMB51.1 million resulted mainly from
operating profit before working capital changes, increase in operating payables and decrease in operating
receivables, partly offset by increase in inventories, interest and taxes paid;
- Net cash generated from investing activities of RMB0.2 million mainly from proceeds from disposal of
property, plant and equipment in conjunction with the shifting of the Group's Hong Kong office and
warehouse and interest received, partly offset by purchases of machinery and office equipment; and
- Net cash used in financing activities of RMB44.8 million mainly from net repayment of bank borrowings and
finance lease creditors, higher restricted bank balances, repayment to related parties and dividend paid to
shareholders of the Company.
Commentary
China's economy slowed to 6.5 percent year-on-year in the third quarter of 2018 marking the weakest growth since the global financial crisis, amidst the country's trade war with the U.S. which puts pressure on growth. Recent economic data have also pointed to weakening domestic demand with softness across factory activity to infrastructure investment and consumer spending, as a years-long crackdown on riskier lending and debt has pushed up companies' borrowing cost.
The construction sector in China is seeing an increase in the adoption of prefabricated construction method that will likely drive the demand of bigger size towercranes. 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 market like Hong Kong remains challenging. However, the Group remains cautious in view of the keen price competition as well as the rising material and business cost.
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.