HSS Engineering

Latest Quarterly Results

Quarterly Report For The Financial Period Ended 30 June 2018

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Unaudited Condensed Consolidated Statement Of Profit Or Loss And Other Comprehensive Income For The Second Quarter Ended 30 June 2018



Unaudited Condensed Consolidated Statement Of Financial Position As At 30 June 2018

Review of Performance

For the current quarter and current period to date under review, the Group recorded revenue of RM55.0 million and RM89.0 million respectively.

  1. Analysis of our revenue by activities is as follows:-

  2. Engineering design

    Engineering design revenue increased substantially by RM11.1 million and RM14.8 million for the current quarter and current period ended 30 June 2018 respectively as compared to the corresponding quarter and period in previous year. This is attributable to the major on-going projects which includes East Coast Rail Line (“ECRL”) detailed design and preliminary design, Proposed Tun Razak Exchange (TRX) External Roads and West Coast Expressway have contributed to the major proportion of engineering design revenue. However, this was compensated by the completion of few projects including ECRL scheme design and Temporary Common Camp Facilities and Infrastructure for Refinery and Petrochemicals Integrated Development (“RAPID”) Project.

    In addition, our newly acquired subsidiary, SMHB Engineering Sdn Bhd who started to contribute revenue to our Group post acquisition has led to an increase in engineering design revenue by RM6.7 million.

    Construction supervision

    Our major on-going supervision projects including Maju Expressway Extension To KLIA, Sungei Besi-Ulu Kelang Elevated Expressway and West Coast Expressway, ECRL supervision which are progressing well in line with the construction stage of these projects continued to contribute majority of the supervision revenue during current period and quarter ended 30 June 2018. However, this was offsetted by completed project, i.e. LRT Ampang Line Extension and Kuantan Port Expansion in line with their completion status.

    In addition, our newly acquired subsidiary, SMHB Engineering Sdn Bhd who started to contribute revenue to our Group post acquisition has led to a substantial increase in construction supervision revenue by RM12.4 million.

    Project management

    The revenue from project management for both current period and quarter decreased as compared to the same corresponding periods in previous year. This is in line with the progress of the on-going project management projects which include MRT Line 2 –Jajaran Sg. Buloh-Serdang-Putrajaya and MRT Line 1- Jajaran Sg. Buloh-Kajang. However, this is offset by project Pelaksanaan Pembangunan Rumah Mampu Milik (Rumah Selangorku) which is progressing as per schedule.

    BIM services

    BIM services accounted for small proportion of the Group’s revenue. The reduction in revenue for both current period and quarter was mainly due to the completion of certain BIM projects.

    Reimbursable income

    Reimbursable income is recognised on a back to back basis with sub-consultant and allowances claimed by supervision staff and therefore it has no significant impact on the financial performance of the Group regardless of the decline or rise in reimbursable income.



  3. Analysis of our revenue by geographical locations is as follows:-

  4. Local market continued to contribute significant portion of revenue amounting to 98.0% of the Group’s total revenue. The higher revenue posted by Malaysia segment was attributed to local projects explained in section (a) above.

  5. Profit after tax ("PAT")
  6. PAT for current quarter ended 30 June 2018 grew substantially by RM3.93 million or 132.3% is mainly attributable to newly acquired subsidiary, i.e. SMHB Engineering Sdn Bhd who contributed RM3.3 million in current quarter post acquisition apart from higher PAT contributed by existing subsidiary, HSS Engineering Sdn Bhd. However, this is compensated by higher interest expense by RM1.7 million mainly arising from the term loan of RM85 million to part finance the acquisition of SMHB Engineering Sdn Bhd.

    PAT for current period ended 30 June 2018 increased by RM1.65 million or 27.0% is mainly attributable to newly acquired subsidiary, i.e. SMHB Engineering Sdn Bhd who contributed RM3.3 million in current quarter post acquisition apart from higher PAT contributed by existing subsidiary, HSS Engineering Sdn Bhd. However, this is compensated by higher interest expense by RM1.74 million mainly arising from the term loan of RM85 million to part finance the acquisition of SMHB Engineering Sdn Bhd and one-off expenses totalling RM2.58 million incurred for our multiple corporate exercises for the acquisition of SMHB Engineering Sdn Bhd which were completed in March 2018.

  7. Our unbilled order book which includes order book from SMHB Engineering Sdn Bhd as at 30 June 2018 is as follows:
  8. The above unbilled order book will be billed progressively on average over the next two (2) to five (5) years.

Prospects

  1. Prospects in the Water Infrastructure Sector

    For the current quarter, revenue and earnings have been boosted by the consolidation of results of SMHB Engineering Group as the completion of the acquisition was completed on 28 March 2018. SMHB Engineering Group is principally involved in engineering consultancy services primarily in water infrastructure sector with more than 35 years of expertise and experiences in the water sector. In view of this, the Board of Directors is of the view that through SMHB Engineering Group, our enlarged Group will be able to leverage on their expertise and track record in the water sector whereby there will be accelerated spending in this sector given their strategic importance to the country.

    On 3 August 2018, Selangor State Government through a special purpose vehicle (“SPV”) Pengurusan Air Selangor Sdn Bhd has made a fresh offer of RM2.55 billion for 100% stake in water treatment operator, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (“SPLASH”). This positive development brings closure to the 10-year deadlock situation in Selangor's water consolidation initiative.

    The acquisition will allow for all water assets in Selangor to be restructured and to facilitate investments in the water industry to have an efficient and optimized water supply management system in the state . Investments in water assets in terms of source, treatment and distribution are required to resolve the continuing water crisis by boosting water reserve margins, to accommodate for the increasing demand by both industrial and consumer users, improving connectivity and also to reduce non revenue water loss.


  2. Status of East Coast Rail Link (‘’ECRL’’) Pending Government’s Review

    Given the high national debt level, we are supportive of the government’s efforts in reducing the debt level which includes the review of mega projects like ECRL. On 9 July 2018, we have made announcements on the suspension of services for both detail design and supervising consultancy services for infrastructure work for one of the packages in ECRL.

    There was no significant impact on the operations and financials of the Company up to the date of suspension in the current financial period as all completed works shall be compensated for in accordance with the terms and conditions of the contracts.

    Upon completion of the Government’s review, there will be clearer visibility upon receipt of direction from the client for us to assess the financial impact, if any. In the event the suspension of the contracts is lifted, it is expected for both contracts to contribute positively to the revenue and earnings of the Company.


  3. Future Plans
    The Group has put in place a series of future plans as follows:-
    1. Continuous enhancement on its Building Information Modeling (“BIM”) services which will be made mandatory in 2020 onwards for public projects worth RM100 million in Malaysia;
    2. Proposed venture into a fourth (4th) core service i.e. facility management to develop a steady long term income business model;
    3. Geographical expansion into ASEAN and India regions; and
    4. Venturing into the provision of support services to the power generation sector which is expected to receive strong government support.

Premised on the aforesaid plans (i) and (iii), the Group expects reasonable performance in the financial year 2018 given the existing unbilled order book balance of RM630.8 million which will provide visibility in earnings for the next 2-3 years.

Despite of the current business environment and barring any unforeseen circumstances, the Board of Directors of the Company is of the opinion that the prospects for the remaining period to the end of the financial year ending 31 December 2018 will remain challenging.