Chun Wo profit surges 50 percent

Chun Wo profit surges 50 percent

Danny Chung

 

 

Annual net profit at mid-sized contractor Chun Wo Development Holdings (0711) has surged by nearly half as it rides high on ongoing government spending on public works and private sector property development.

For the year ending 31 March 2013, the company reported that net profit jumped by 48.6 percent year-on-year to HK$77.8 million, comfortably exceeding its target of 10 percent annual growth in profit.

Total revenue, if the company’s share from jointly controlled entities is included, reached a record high of HK$5.2 billion, up 6.9 percent year on year.

However if the revenue from jointly controlled entities is excluded, revenue for the year was HK$3.8 billion, representing a jump of 19.2 percent over the 2011 figure.

Of this HK$3.8 billion, construction work accounted for HK$2.97 billion representing an increase of 13.7 percent year-on-year while revenue from property development leapt 74.8 percent to HK$588.6 million.

There was good news for shareholders with the company announcing a 75 percent increase in total dividend for the year of 75 HK cents.

“The large number of major projects in hand enabled the construction segment to continue as the Group’s biggest contributor in terms of revenue,” company chairman Dominic Pang Yat-ting said in a stock exchange statement Wednesday.

While construction revenue saw a healthy increase in 2012, the segment result for construction, including the jointly controlled entities, slid 29.5 percent to HK$40.4 million.

“The change was mainly attributable to the highly competitive landscape of the Hong Kong construction business, along with rapidly increasing costs, in particular subcontractor costs,” Pang said.

He added that most of the company’s construction projects were public works contracts.

As at the end of March 2013, the estimated value of the contracts in hand was about HK$25.34 billion, of which HK$12.26 billion remained outstanding.

The company won over 19 major contracts during the year including the Diamond Hill to Kai Tak tunnels for the MTR Corporation’s Shatin to Central Link and a major contract for the Drainage Services Department that will use the New Engineering Contract form.

Chun Wo is currently working on the Happy Valley Underground Stormwater Scheme for the Drainage Services Department, which was the largest NEC contract by value at the time when it was awarded last year. (Danny Chung)

Chun Wo is currently working on the Happy Valley Underground Stormwater Scheme for the Drainage Services Department, which was the largest NEC contract by value at the time when it was awarded last year. (Danny Chung)

New contracts worth about HK$1 billion in total were secured subsequent to the end of the last financial year.

Pang said pressure on costs were ongoing especially from “exceptionally high sub-contractor prices” resulting from high demand for specialist subcontractors and continuing increases in costs of labour and materials.

“The Group is taking steps to manage these issues by initiatives such as building up internal labour resources in order to reduce its reliance on sub-contracors to an extent,” Pang said.

In addition, he said Chun Wo would focus on winning short-to-medium term contracts as they allow more accurate prediction of price changes as well as better planning.

On the property investment side, the company said it was looking to sell its Infinity 8 shopping mall at Choi Hung “at the right price”.

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