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Financials

UNAUDITED SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 SEPTEMBER 2017

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UNAUDITED SECOND QUARTER FINANCIAL STATEMENT AND DIVIDEND ANNOUNCEMENT FOR THE FINANCIAL PERIOD ENDED 30 SEPTEMBER 2017

Income Statement

Comprehensive Income

Balance Sheet

Review of Income Statement of the Group

Second Quarter FY2018 ("Q2 FY2018") vs Second Quarter FY2017 ("Q2 FY2017")

Revenue

Group revenue decreased 6.2% to RMB173.1 million in Q2 FY2018 as compared to RMB184.5 million in Q2 FY2017. The decrease resulted mainly from lower services income of RMB6.8 million, lower sales in towercranes of RMB5.7 million and lower sales of components and accessories of RMB1.1 million, partly offset by higher rental income of RMB2.2 million. Decrease in service income mainly due to decrease in Hong Kong and Macau operations as a result of weaker demand.

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 lower sales in towercranes and the higher rental income reported in Q2 FY2018. Consequently, sales in PRC decreased 20.9% from RMB105.5 million in Q2 FY2017 to RMB83.5 million in Q2 FY2018.

The decrease was offset by the increase in Middle East & others and USA & Europe which grew by RMB11.4 million and RMB1.6 million respectively due to higher demand of towercranes especially in Finland and Israel. Asia (outside the PRC) marginally dropped by RMB2.4 million. Nevertheless, PRC sales still made the largest turnover contribution to the Group, amounting to 48.2% of revenue in Q2 FY2018 as compared to 57.2% of revenue in Q2 FY2017.

Gross profit and gross profit margin

Gross profit decreased 10.8% to RMB59.0 million in Q2 FY2018 from RMB66.1 million in Q2 FY2017. The decrease was mainly due to lower revenue and lower margin in Q2 FY2018.

Average gross profit margin decreased to 34.1% in Q2 FY2018 from 35.8% in Q2 FY2017. The decrease was mainly attributable to lesser sales of luffing series towercranes which generates higher gross margin, offset by higher margin from rental and service income.

Other income

Other income decreased to RMB1.2 million in Q2 FY2018 as compared to RMB2.1 million in Q2 FY2017 was mainly due to compensation income from customers of RMB1.6 million in Q2 FY2017.

Operating expenses

Total operating expenses decreased 13.0% to RMB40.9 million in Q2 FY2018 as compared to RMB47.0 million in Q2 FY2017.

Distribution costs decreased 11.5% to RMB13.3 million in Q2 FY2018 as compared to RMB15.1 million in Q2 FY2017 mainly due to lower sales of towercranes in Q2 FY2018 and exhibition expenses incurred for the participation in the bi-annual Bauma 2016 exhibition in Q2 FY2017.

Administrative expenses decreased 13.4% to RMB19.4 million in Q2 FY2018 as compared to RMB22.4 million in Q2 FY2017 largely due to lower bonus provision and lower depreciation cost.

Other operating expenses decreased to RMB3.7 million in Q2 FY2018 from RMB4.9 million in Q2 FY2017. A lower provision for doubtful debts of RMB2.2 million was provided in Q2 FY2018 as compared to RMB4.0 million provision made in Q2 FY2017. Provision for doubtful debts in Q2 FY2018 was made for a Beijing construction company which was long outstanding for more than three years. The decrease was partly offset by higher exchange losses of RMB1.1 million in Q2 FY2018 as compared to RMB0.4 million in Q2 FY2017.

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.

In line with the lower average borrowing, finance costs slightly decreased 2.9% to RMB4.5 million in Q2 FY2018 as compared to RMB4.6 million in Q2 FY2017.

Taxation

Income tax expense decreased to RMB4.6 million in Q2 FY2018 as compared to RMB5.4 million in Q2 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 recorded a lower profit before taxation of RMB19.3 million in Q2 FY2018 as compare to RMB21.3 million in Q2 FY2017 was mainly due to lower revenue and lower gross profit, partly offset by lower operating expenses.

Net profit attributable to equity holders of the Company increased to RMB15.9 million in Q2 FY2018 as compared to RMB14.0 million in Q2 FY2017. This was mainly due to net loss attributable to non-controlling interests of RMB1.1 million in Q2 FY2018 as compared to a profit attributable to non-controlling interest of RMB1.9 million in Q2 FY2017.

First Half FY2018 ("1H FY2018") vs First Half FY2017 ("1H FY2017")

Revenue

Group revenue slightly decreased 3.8% to RMB326.3 million in 1H FY2018, as compared to RMB339.2 million in 1H FY2017. The decrease resulted mainly from lower services income of RMB10.2 million and lower sales in components and accessories of RMB7.1 million, partly offset by higher rental income of RMB2.3 million and higher towercranes sales of RMB2.1 million. Decrease in service income mainly due to decrease in Hong Kong and Macau operations as a result of weaker demand.

Revenue in PRC has decreased to RMB154.9 million in 1H FY2018 as compared to RMB184.5 million in 1H 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 1H FY2018.

The decrease was offset by the increase in Middle East & others and USA & Europe which grew by RMB19.3 million and RMB3.3 million respectively due to higher demand of towercranes especially in Finland and Israel. Asia (outside the PRC) dropped by RMB5.8 million from RMB131.6 million in 1H FY2017 to RMB125.8 in 1H FY2018. Nevertheless, PRC sales still made the largest turnover contribution to the Group, amounting to 47.5% of revenue in 1H FY2018 as compared to 54.4% of revenue in 1H FY2017.

Gross profit and gross profit margin

Gross profit decreased 12.1% to RMB103.6 million in 1H FY2018 from RMB117.9 million in 1H FY2017. The decrease was due to both lower revenue and lower margin in 1H FY2018.

Average gross profit margin decreased to 31.8% in 1H FY2018 from 34.8% in 1H FY2017. The decrease was mainly attributable to lesser sales of luffing series towercranes as well as lesser sales of large and mega sized towercranes 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 1H FY2017. However, there were no such services in 1H FY2018.

Other income

Other income decreased to RMB1.6 million in 1H FY2018 as compared to RMB2.8 million in 1H FY2017 was mainly due to compensation income from customers of RMB1.6 million in 1H FY2017.

Operating expenses

Total operating expenses decreased 10.9% to RMB77.2 million in 1H FY2018 as compared to RMB86.7 million in 1H FY2017.

Distribution costs decreased 13.2% to RMB25.6 million in 1H FY2018 as compared to RMB29.5 million in 1H FY2017 mainly due to lower sales of large and mega sized towercranes in 1H FY2018 and exhibition expenses for the participation in the bi-annual Bauma 2016 exhibition in 1H FY2017.

Administrative expenses decreased 7.3% to RMB38.8 million in 1H FY2018 as compared to RMB41.9 million in 1H FY2017 largely due to lower bonus provision and lower depreciation.

Other operating expenses decreased to RMB4.6 million in 1H FY2018 from RMB6.0 million in 1H FY2017. A lower provision for doubtful debts of RMB2.2 million was provided in 1H FY2018 as compared to RMB4.0 million provision made in 1H FY2017. Provision for doubtful debts in 1H FY2018 was made for a Beijing construction company which was long outstanding for more than three years. The decrease was partly offset by higher exchange losses of RMB1.5 million in 1H FY2018 as compared to RMB0.9 million in 1H FY2017.

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.

In line with the lower average borrowing, finance costs decreased 12.2% to RMB8.1 million in 1H FY2018 as compared to RMB9.2 million in 1H FY2017.

Taxation

Income tax expense decreased to RMB5.8 million in 1H FY2018 as compared to RMB8.0 million in 1H 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 RMB28.1 million in 1H FY2018 as compared to RMB34.1 million in 1H FY2017 was mainly due to lower revenue and lower gross profit, partly offset by lower operating expenses.

Net profit attributable to equity holders of the Company increased to RMB22.6 million in 1H FY2018 as compared to RMB22.0 million in 1H 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 RMB16.0 million to RMB564.7 million as at 30 September 2017 mainly due to depreciation and amortization expenses charged and lower deferred tax assets, 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 decreased mainly from lower provisions and elimination of unrealised profits in intragroup sales.

Current Assets

Current assets increased by RMB28.0 million to RMB878.1 million as at 30 September 2017 mainly due to higher trade and other receivables and deferred cost. This was partly offset by lower inventory and cash and cash equivalents.

Inventories decreased by RMB10.8 million to RMB306.8 million to RMB317.6 million as at 30 September 2017. Higher inventory level are normally maintained for first half of the year due to the seasonal cycle of demand.

Trade and other receivables increased by RMB69.3 million to RMB361.5 million as at 30 September 2017 due to timing of sales and slower collections in the PRC.

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 RMB6.2 million to RMB67.3 million as at 30 September 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 RMB6.9 million to RMB685.2 million as at 30 September 2017 mainly due to repayment of borrowings and amount owing to/advances from related parties, partly offset by higher trade and other payables and amount owing to a corporate shareholder of a subsidiary.

Trade and other payables increased by RMB3.8 million mainly due to higher advances from customers.

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 RMB27.0 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 30 September 2017, the Group's total equity amounted to RMB690.3 million. The increase was mainly due to net profit of RMB22.2 million, partly offset by dividends paid in Q2 FY2018 and other comprehensive expense of RMB5.1 million for 1H FY2018.

Review Of Cashflow Statement

Q2 FY2018 vs Q2 FY2017

The Group reported a net decrease in cash and cash equivalents amounting to RMB10.0 million in Q2 FY2018 mainly due to:

  1. Net cash used in operating activities in Q2 FY2018 of RMB9.5 million resulted mainly from increase in operating receivables, increase in deferred cost and decrease in operating payables, partly offset by operating profit before working capital changes, decrease in inventory and increase in deferred income;

  2. Net cash generated from investing activities of RMB0.8 million mainly from interest received offset by purchases of machinery; and

  3. Net cash used in financing activities of RMB1.3 million mainly from dividend paid to shareholders of the Company, repayment to a director and net repayment of bank borrowings and finance lease creditors, partly offset by lower restricted bank balances.

1H FY2018 vs 1H FY2017

The Group reported a net increase in cash and cash equivalents amounting to RMB6.0 million in 1H FY2018 mainly due to:

  1. Net cash used in operating activities in 1H FY2018 of RMB16.3 million resulted mainly from increase in operating receivables and increase in deferred cost, partly offset by operating profit before working capital changes, increase in operating payables and increase in deferred income;

  2. Net cash used in investing activities of RMB0.4 million mainly from purchases of machinery and motor vehicles, partly offset by interest received; and

  3. Net cash generated from financing activities of RMB22.7 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 third quarter of 2017, a tad lower than the second quarter's 6.9 percent expansion. 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 versus last year. However, the economic growth may cool in coming months as government crack-down on financial risks thereby raising borrowing costs for businesses.

Rapid property price rises in some of the biggest cities fanned concerns of overheating and prompted a few local governments to cool sales by tightening property transfer restrictions. In smaller cities, a large number of unsold new properties continued to hit sales and prices, forcing local authorities to explore new ways to increase sales. As such, domestic demand for construction machinery and equipment including towercranes for residential property market continues to remain muted.

While 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.


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