Koon Holdings Corporate Information

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Chairman's Messages

 
ceo images
Mr Yao Chee Liew
Chairman
Dear Stakeholders,

On the 4th January 2010, the Ministry of Trade and Industry published its advanced estimates. These estimates showed that economic activity in Singapore slowed in the fourth quarter of 2009 resulting in 2009 GDP contracting by 2.1 percent.

The construction sector grew by a robust 11 percent in the fourth quarter, following the 13 percent growth in the third quarter. For the whole year, the construction sector grew by 16 percent, down from 20 percent achieved in the previous year.

A lead indicator of construction activity, namely contracts awarded, suggests that construction activity is likely to slow further. Contracts awarded declined 29 percent from S$8,269 million in third quarter of 2008 to S$5,851 million in third quarter of 2009. The decline was mainly due to private contracts awarded and reflects the sharp slowdown in commercial and residential building. The sector we are more reliant on, namely the public contracts awarded, which includes the bulk of civil engineering work, has continued to grow though at a less frenzied pace. Major projects awarded in the third quarter included various Downtown Line Stage 2 projects, Campus for Research Excellence & Technological Enterprise and Waterfront Key, International Cruise Terminal at Marina South and The Wharf Residence.

Contracts Awarded: (year-on-year change)
  2008 2009
Q1 Q2 Q3 Q4 Q1 Q2 Q3
Overall 145.2% 27.5% 61.1% -6.9% -51.6% -38.9% -29.2%
Public 272.5% 47.3% 105.3% 205.2% 4.6% 123.3% 26.6%
Private 104.1% 23.2% 41.6% -70.4% -84.7% -80.2% -65.1%

Certified Payments: (year-on-year change)
  2008 2009
Q1 Q2 Q3 Q4 Q1 Q2 Q3
Overall 41.1% 53.5% 50.5% 41.3% 42.0% 25.3% 7.6%
Public -6.8% 45.4% 56.2% 57.3% 55.5% 38.3% 17.8%
Private 63.7% 57.0% 48.2% 35.4% 36.2% 20.2% 3.1%
     

Growth in certified payments moderated to 7.6 percent, from $7,062 million in third quarter of 2008 to $7,595 million in third quarter of 2009, with private sector projects registering a sharper slow down, particularly in the residential and industrial building segments.

Whilst public sector demand remains firm in Singapore, there appears to be a growing trend towards very large or small scale contracts (meaning there are fewer medium sized contracts). Very large projects require the Group to take on significant risk. Small scale contracts attract greater competition and more modest margins. Accordingly, the Group is looking beyond Singapore for opportunities. Vietnam is a potential market as there exists significant opportunities for infrastructure projects.

The increase in Group revenue was mainly due to the substantial completion of several larger construction projects by the Construction division. Due to the strong demand from the Construction division, the Land-based Rental division also reported better results compared to 2008. However, due to the slow down in demand for marine transportation in the second half of the year, the Marine Logistics division suffered a decline in turnover by 24%.

The Group was able to increase gross profit margin from 3.1% to 12.5% due to the following:–

  1. Centralised procurement of supplies and services resulting in increased bargaining power.
  2. Closer monitoring of construction materials and minimisation of waste.
  3. Closer monitoring of scrap resulting in higher other income from scrap.
  4. More in-house works, thereby reducing our reliance on subcontractors and reducing costs.
  5. Disposal of non-productive assets.
  6. Purchase rather than leasing core assets.
  7. Greater space utilisation resulting in more rental income.
  8. Closer monitoring of cashflow thereby reducing borrowing costs.
  9. Review of and reduction in manpower resources.

As a result of the above measures carried out by the management, the Group was able to translate a 10.6% increase in revenue into record net profit up 441.1%.

 
Corporate Developments

Koon upgrades to SGX Mainboard

On 29 January 2010, the Group received in-principal approval from the Singapore Exchange Securities Trading Limited ("SGXST") for the transfer (the "Transfer") of the secondary listing and quotation of the shares of Koon Holdings Limited (the "Company") from Catalist to the Mainboard of the SGX-ST, the listing and quotation of the Company shares on the Mainboard of the SGX-ST commenced from 9:00am on 4 February 2010.

The Transfer of the secondary listing and quotation of the Company's shares to the Mainboard of the SGX-ST will have no effect on the listing and quotation of the Company's shares on the Australia Securities Exchange ("ASX") where the Company maintains its primary listing.

Business prospects

As announced on 13 October 2009, the Group has embarked on plans to transform its Pandan yard into a mini marine logistics hub by leveraging on the yard's seafront location and deep berth. This new venture will allow the Group to expand its range of marine logistics related businesses, as well as diversify into other value added services such as warehousing and small scale ship repair.

According to figures released by the Building and Construction Authority ("BCA") of Singapore, total construction output (payment made for work done) in 2009 is estimated to have reached a record high of about S$30 billion supported by the high level of contracts awarded in 2008. The growth of public contracts awarded should result in continued growth of civil engineering activity into 2010. Among the projects set to be released for tender this year are projects by the Land Transport Authority ("LTA") to develop Downtown line stage 3, major road projects, LNG Terminal and Seletar Aerospace Park. Thus demand for the Group's core specialty of civil engineering works is set to remain buoyant in the near term. BCA's construction demand forecast (2010 to 2012) puts public sector spending at between S$21 billion and S$27 billion, of which 32% to 36% has been earmarked for civil engineering projects.

However, as noted above, challenges remain. On very large projects, the risk profile for the Group is high. For smaller projects, margins will remain tight. The Group expects the number of medium sized projects to decline. As such the Group is evaluating projects beyond the shores of Singapore.

On behalf of the Board, I would like to express my heartfelt appreciation to all our shareholders, employees and business partners, for their support which enabled our continued business achievements over the years.

We look forward to your continuing support as Koon Holdings moves ahead in 2009 and beyond.




Yao Chee Liew
Non-Executive Chairman and Independent Director