Financials
UNAUDITED FOURTH QUARTER/FULL YEAR FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD/YEAR ENDED 31 MARCH 2019
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UNAUDITED FOURTH QUARTER/FULL YEAR FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD/YEAR ENDED 31 MARCH 2019
Income Statement
Comprehensive Income
Balance Sheet
Review of Income Statement of the Group
Fourth Quarter FY2019 ("Q4 FY2019") vs Fourth Quarter FY2018 ("Q4 FY2018")
Revenue
Group revenue increased by 51.9% to RMB263.9 million in Q4 FY2019 as compared to RMB173.8 million in Q4 FY2018. The increase in revenue was mainly from higher sales of towercranes by RM105.7 million from RMB116.2 million in Q4 FY2018 to RMB221.9 million in Q4 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. A unit of our latest mega size model, the STT3930 was sold in Q4 FY2019 in the PRC. It is one of the largest Topless towercranes in the world.
Sales of components slightly increased by RMB5.8 million. The increase in revenue was partly offset by lower rental and service income by RMB21.5 million mainly. Decrease in rental & service income was mainly due to decrease in Hong Kong and Macau operations as a result of weaker demand. Rental in the PRC was also lower due to sales of certain leased towercranes to customers.
All sales region except for the USA & Europe reported a higher revenue in Q4 FY2019 as compared to Q4 FY2018. Revenue in the PRC also increased 71.6% from RMB74.2 million in Q4 FY2018 to RMB127.3 million in Q4 FY2019 resulted mainly from higher demands in medium size towercranes and sales of leased towercranes in Q4 FY2018. Asia (outside the PRC) has increased by 55.9% to RMB107.3 million mainly due to increase demand for higher lifting capacity towercranes in adoption of Prefabricated Pre-finished Volumetric Construction (PPVC) method. Revenue in Middle East & Others has also slightly up by RMB2.0 million. The increase was slightly offset by the decrease in the USA & Europe which was down by RMB3.5 million.
Overall, the PRC and Asia (outside the PRC) sales contributed to 48.3% and 40.7% respectively of the Group revenue in Q4 FY2019.
Gross profit and gross profit margin
In line with increase in revenue, gross profit increased by 76.2% to RMB76.9 million in Q4 FY2019 from RMB43.6 million in Q4 FY2018.
Average gross profit margin increased to 29.1% in Q4 FY2019 from 25.1% in Q4 FY2018 which also explained the higher gross margin. The increase was attributable to sales of more large and mega sized towercranes of higher lifting capacity which generates higher margin.
Other income
Other income increased by RMB2.8 million to RMB3.7 million in Q4 FY2019 as compared to RMB0.9 million in Q4 FY2018 was mainly due to interest income of RMB1.0 million, sub-rental of premises income from Hong Kong of RMB0.7 million, government grant of RMB1.2 million and compensation income from customers by court orders. Interest income mainly derived from deposit placed to secure trade facility.
Operating expenses
Total operating expenses slightly decreased by 2.7% to RMB41.9 million in Q4 FY2019 as compared to RMB43.1 million in Q4 FY2018.
Distribution costs decreased slightly by 2.9% to RMB16.2 million in Q4 FY2019 as compared to RMB16.6 million in Q4 FY2018 mainly due to lower freight and transportation, offset by higher staff cost and higher premises rental in Hong Kong. Transportation and freight cost decreased despite higher sales, which is explained by a reversal of over accruals in previous quarter and lower transportation cost on rental fleets. Higher staff cost as higher staff commission which is in line with higher sales. Bigger space area with higher rental expenses incurred for the new Hong Kong yard, which the Company is subletting partially. The corresponding rental income is recorded under "Other income".
Administrative expenses decreased 5.7% to RMB22.7 million in Q4 FY2019 as compared to RMB24.1 million in Q4 FY2018 mainly due to lower transportation cost and lower depreciation, partly offset by higher staff cost and bonus provision. Higher transportation cost was incurred in Q4 FY2018 for the shifting of Hong Kong office and warehouse. Higher staff costs mainly due to increase in average salary whilst higher bonus is in line with higher profit.
Other operating expenses reported a credit balance of RMB2.0 million in Q4 FY2019 from a credit balance of RMB1.3 million in Q4 FY2018. The credit balance for both period was due mainly from a reversal of impairment for trade receivables of RMB3.7 million and RMB4.4 million respectively as a result of debts recovery. The reversal for impairment of trade receivables of RMB3.7 mainly pertains to:
- RMB1.5 million recovered by recalling two units of towercranes;
- RMB3.0 million collections from customers previously provided for in FY2018; offset by
- RMB0.8 million provision for the year in Hong Kong Group.
The decrease was also due to lower exchange loss of RMB1.1 million and one off provision made for loss on disposal of property, plant and equipment in conjunction with the shifting of the Group's Hong Kong office and warehouse in Q4 FY2018 of RMB0.6 million, offset by higher bank charges of RMB0.4 million.
The exchange loss arose mainly from:
- the weakening of Singapore Dollars ("SGD") against Chinese Yuan ("RMB") due to net RMB liabilities in the Singapore subsidiary's book; and
- the weakening of USD against SGD due to net USD assets in the Singapore subsidiary's book; offset by
- the strengthening of Hong Kong Dollars ("HKD") against Chinese Yuan ("RMB") due to net RMB liabilities in the 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.
Finance costs increased 37.9% to RMB5.0 million in Q4 FY2019 as compared to RMB3.7 million in Q4 FY2018 due mainly to higher average borrowings, higher effective interest rate and discounting charges on early realization of letter of credit from customers.
Taxation
Income tax expense increased to RMB9.3 million in Q4 FY2019 as compared to RMB1.8 million in Q4 FY2018 is in line with higher 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 RMB38.7 million in Q4 FY2019 as compared to RMB1.5 million in Q4 FY2018 was mainly due to higher gross profit from higher revenue.
Net profit attributable to equity holders of the Company increased to RMB30.4 million in Q4 FY2019 from RMB0.9 million in Q4 FY2018. This was mainly due to higher profit before taxation, offset by tax expense.
FY2019 vs FY2018
Revenue
Group revenue increased by 35.5% to RMB885.4 million in FY2019 as compared to RMB653.5 million in FY2018. The increase in revenue was mainly from higher sales of towercranes by RM254.5 million from RMB444.0 million in FY2018 to RMB698.5 million in 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. A unit of our latest mega size model, the STT3930 was sold in Q4 FY2019 in the PRC. It is one of the largest Topless towercranes in the world.
The increase in revenue from sales of towercranes was partially offset by lower rental & service income and sales of components of RM22.0 million and RMB0.7 million respectively in FY2019 as compared to FY2018. Decrease in rental & service income was mainly due to a slow down in Hong Kong and Macau operations. Rental income in the PRC was also lower due to sales of certain leased towercranes to customers.
All sales region except for the USA & Europe reported a higher revenue in FY2019 as compared to FY2018. Revenue in the PRC increased 45.1% from RMB303.6 million in FY2018 to RMB440.6 million in FY2019 resulted mainly from higher demands in medium size towercranes. Revenue in Asia (outside the PRC) also increased by 33.3% to RMB333.2 million mainly due to increase demand for higher lifting capacity towercranes in adoption of Prefabricated Pre-finished Volumetric Construction (PPVC) method. Revenue in Middle East & Others has also up by RMB26.8 million. The increase was offset by the decrease in the USA & Europe which was down by RMB15.1 million.
Overall, the PRC and Asia (outside the PRC) sales contributed to 49.8% and 37.6% respectively of the Group revenue in FY2019.
Gross profit and gross profit margin
Gross profit increased 26.0% to RMB238.7 million in FY2019 from RMB189.5 million in FY2018. The increase was due to higher revenue.
However, average gross profit margin decreased to 27.0% in FY2019 from 29.0% in FY2018 amidst keen price competition from sales of towercranes, coupled with higher steel material cost. Despite higher proportion of big and mega size towercranes which generate higher margin were being sold during the year, average margin remains lower.
Margin of service and rental income from Hong Kong operations was also lower resulted from keen price competition as a result of low market demand.
A provision for inventory obsolescence for certain components and accessories of RMB4.4 million was made in FY2019 as part of the Group's products rationalization exercise to discontinue certain towercranes model with low market demand which had also lower the average gross margin.
Other income
Other income increased by RMB5.8 million to RMB9.1 million in FY2019 as compared to RMB3.3 million in FY2018 was mainly due to higher rental income of RMB3.3 million, government grant of RMB1.9 million and higher compensation income of RMB1.0 million. The rental income in FY2019 pertains to sub-rental of Hong Kong. Compensation income for the year refer to compensation from sub-contractors resulted from non-conformance in quality for goods delivered of RMB0.6 million and compensation income from customers by court orders of RMB0.4 million. Interest income mainly derived from deposit placed to secure trade facility.
Operating expenses
Total operating expenses increased 9.9% to RMB171.7 million in FY2019 as compared to RMB156.3 million in FY2018.
Distribution costs increased 28.9% to RMB69.9 million in FY2019 as compared to RMB54.2 million in FY2018 mainly due to higher freight and transportation, higher staff cost and higher premises rental in Hong Kong. Transportation and freight cost increased is in line with higher sales. Higher staff cost as higher staff commission which is in line with higher sales. 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. It is also due to bigger space area for the new Hong Kong yard, which the Company is subletting partially. The corresponding rental income is recorded under "Other income".
Administrative expenses increased 5.6% to RMB89.0 million in FY2019 as compared to RMB84.2 million in FY2018 largely due to higher staff cost and bonus provision and higher office expenses. The increase was partly offset by lower depreciation. Higher staff costs mainly due to increase in average salary whilst higher bonus is in line with higher profit.
Other operating expenses reported a credit balance of RMB5.6 million in FY2019 from a debit balance of RMB1.8 million in FY2018. The credit balance in FY2019 was mainly from reversal of impairment for trade receivables of RMB3.7 million and exchange gain of RMB3.3 million offset by bank charges of RMB1.2 million. The difference was mainly due to exchange gain of RMB3.3 million in FY2019 whilst it reported an exchange loss of RMB4.3 million in FY2018.
The reversal for impairment of trade receivables of RMB3.7 mainly pertains to:
- RMB1.5 million recovered by recalling two units of towercranes;
- RMB3.0 million collections from customers previously provided for in FY2018; offset by
- RMB0.8 million provision for the year in Hong Kong Group.
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 15.0% to RMB18.5 million in FY2019 as compared to RMB16.1 million in FY2018 due mainly to higher effective interest rate and discounting charges on early realization of letter of credit from customers.
Taxation
Income tax expense increased to RMB17.2 million in FY2019 as compared to RMB8.2 million in FY2018 is in line with higher profit for the financial year.
Profit before taxation and Net profit attributable to equity holders of the Company
The Group recorded a profit before taxation of RMB76.0 million in FY2019 as compared to RMB36.6 million in FY2018 was mainly due to higher gross profit from higher revenue, partly offset by higher operating expenses.
Net profit attributable to equity holders of the Company increased to RMB61.5 million in FY2019 from RMB27.6 million in FY2018. This was mainly due to profit before taxation, offset by tax expense.
Review Of Financial Position Of The Group
Non-current Assets
Non-current assets increased by RMB36.0 million to RMB563.3 million as at 31 March 2019 arises from net additions in property, plant and equipment mainly due to higher financial assets, FVOCI and higher deferred tax assets. Fair value gains of RMB30.7 million on the financial assets, FVOCI was recognised as at 31 March 2019.
Deferred tax assets also increased by RMB4.3 million. Deferred tax assets arose mainly from provisions and elimination of unrealised profits in intragroup sales.
Current Assets
Current assets increased by RMB180.9 million to RMB1,099.9 million as at 31 March 2019 mainly due to higher inventory, higher trade and other receivables, higher cash and cash equivalent and higher amount owing by related parties.
Trade and other receivables increased by RMB62.3 million to RMB455.0 million as at 31 March 2019. The increase is in line with increase in sales.
Inventories increased by RMB36.3 million to RMB358.6 million as at 31 March 2019 as compared to RMB322.3 million as at 31 March 2018 for delivery due in the first quarter FY2020. Increase in inventory level is in line with increase in sales.
Amount owing by related parties increased by RMB18.0 million to RMB89.2 million as at 31 March 2019 due to higher sales over repayments from related parties.
Non-current Liabilities
Non-current liabilities decreased by RMB1.3 million to RMB51.3 million as at 31 March 2019 as compared to RMB52.6 million as at 31 March 2018. The decrease is mainly from lower trade and other payables of RMB1.8 million, offset by higher deferred tax liabilities increased by RMB1.0 million.
Current Liabilities
Current liabilities increased by RMB124.6 million to RMB829.3 million as at 31 March 2019 as compared to RMB704.7 million as at 31 March 2018 mainly due to increase in trade and other payables, amount owing to a corporate shareholder of a subsidiary and higher tax payable. The increase was partly offset by lower borrowings and lower amount owing to related parties.
Trade and other payables increased by RMB130.4 million mainly due to higher bills payables of RMB59.9 million and higher advances from customers of RMB59.1 million. Increase in bills payables is in line with increase in purchases made during the financial period.
Amount owing to a corporate shareholder of a subsidiary increased by RMB4.5 million due to higher transactions over repayments during the period.
Amount owing to related parties was for the purpose of increasing the working capital of the Group.
Total Equity
As at 31 March 2019, the Group's total equity amounted to RMB783.0 million, increased from RMB689.0 as at 31 March 2018. The increase was mainly due to total comprehensive income of RMB98.3 million for FY2019, partly offset by dividend paid during the year.
Review Of Cash Flow Statement
Q4 FY2019 vs Q4 FY2018
The Group reported a net increase in cash and cash equivalents amounting to RMB41.9 million in Q4 FY2019 mainly due to:
- Net cash generated from operating activities in Q4 FY2019 of RMB64.1 million resulted mainly from operating profit before working capital changes, decrease in inventories and increase in operating payables, partly offset by increase in receivables and interest and taxes paid;
- Net cash used in investing activities of RMB6.9 million mainly from purchase of properties, machineries and office equipment during the period and repayment to corporate shareholder of a subsidiary, partly offset by interest received; and
- Net cash used in financing activities of RMB15.2 million mainly from net repayment of bank borrowings and finance lease creditors and repayment to related parties, partly offset by lower restricted bank balances.
FY2019 vs FY2018
The Group reported a net increase in cash and cash equivalents amounting to RMB57.6 million in FY2019 mainly due to:
- Net cash generated from operating activities FY2019 of RMB108.5 million resulted mainly from operating profit before working capital changes, increase in operating payables, partly offset by increase in operating receivables, increase in inventories, interest and taxes paid;
- Net cash used in investing activities of RMB13.9 million mainly from acquisition of properties, machineries and office equipment and repayment to corporate shareholder of a subsidiary. It was partly offset by interest received and the proceeds from disposal of property, plant and equipment in conjunction with the shifting of the Group's Hong Kong office and warehouse as well as proceeds from disposal of motor vehicle in other entities; and
- Net cash used in financing activities of RMB37.0 million mainly from net repayment of bank borrowings and finance lease creditors, higher restricted bank balances, repayment to related parties and a director and dividend paid to shareholders of the Company.
Commentary
China GDP expanded 6.4% in annual terms in Q1 2019, matching Q4 2018 performance and surpassing the 6.3% expansion market analysts had penciled in. However, China's growth is projected to decelerate to 6.2 per cent in the year 2019, slightly below previous projections as a result of weaker exports amidst the country's trade war with the U.S. which puts pressure on growth. Trade tensions between the U.S. and China may also stall a global recovery and are continuing to endanger investment and growth.
China government also pumps up spending on infrastructure to boost economic growth to stave off the slowdown in the domestic economy and effect of trade war.
Apart from this, 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 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. The relocation shall commence during July to September 2019. This is unlikely to have a significant impact to the financial statements.