Hiap Seng third-quarter net profit slides to S$1.1m

"Escalating" labour costs eating into profit.

Hiap Seng Engineering Ltd (Hiap Seng) announced its results for the three months ended December 31, 2013 (3QFY2014), with the Group recording a 3QFY2014 revenue of S$66.5 million, which was a marginal 3.0% lower than the previous corresponding period (3QFY2013). This was mainly due to lower recognition of project revenue, according to the firm.

Gross profit was weighed down by escalating labour costs and decreased from S$8.5 million in 3QFY2013 to S$6.8 million in 3QFY2014. As a result, the net profit attributable to shareholders declined to S$1.1 million in 3QFY2014 when compared to S$2.9 million in 3QFY2013.

For the nine months ended December 31, 2013 (9MFY2014), the Group’s revenue was relatively flat at S$190.1 million when compared to the previous corresponding period (9MFY2013). Gross profit however decreased from S$22.1 million in 9MFY2013 to S$14.0 million in 9MFY2014. This was mainly due to cost overruns on certain projects and escalating labour costs.

The Group also recorded an “other loss” of S$0.3 million in 9MFY2014 as compared to an “other gain” of S$6.1 million in 9MFY2013. The “other gain” recorded in 9MFY2013 was due to the write-back of provision for losses of S$1.7 million and a one-time gain on equity interest of S$5.0 million, which resulted from a step acquisition of a Thai associated company.

In 4QFY2013, the Group finalised its purchase price allocation and the final resultant gain was S$3.8 million.

As a result, the Group incurred a net loss attributable to shareholders of S$4.7 million in 9MFY2014, as compared to a net profit attributable to shareholders of S$12.1 million in 9MFY2013.

As at today, the Group’s order book stands at S$268.0 million.

Mr. Frankie Tan, Chairman and CEO of Hiap Seng, said: “Our operating environment has been challenging with increasing cost pressures and intense competition. Despite these obstacles, we look to the support of our experienced senior management team and workforce to overcome them. With our established track record and extensive network, we are known for our top-quality service and continueto secure further opportunities to grow our order book and bolster our business.”

Despite positive outlook for the oil and gas, and petrochemical industries which the Group serves, the Directors of the Company are not optimistic about the Group's performance for the current financial year ending 31 March 2014 due to keen competition, escalating labour costs and potential cost overruns on certain projects.

In view of this, the Group said it will continue to control costs and take steps to improve productivity.

The Group will also continue to seek opportunities in the region to grow its markets as well as to enhance shareholder value.