Construction segment yields $235m operating profit
Annual profit at infrastructure company NWS Holdings (0659), a unit of developer giant New World Development (0017), has dived by nearly a quarter due mainly to no repeat of a gain from disposal of a subsidiary.
For the year to 30 June 2013 profit attributable to shareholders dropped by 24 percent year-on-year to HK$4 billion.
This was despite turnover edging up by nine percent to HK$16.2 billion.
The company pointed out that if the exceptional gain of HK$1.8 billion from the disposal of a subsidiary booked in the previous financial year was stripped out, the profit attributable to shareholders would have risen by 18 percent to HK$4 billion.
Attributable operating profit edged up by one percent to HK$4.27 billion.
By segment, revenue from construction and transport was HK$7.47 billion, up 28 percent year on year and accounting for 46 percent of turnover.
However the attributable operating profit for construction was just HK$235 billion compared to the operating profit of HK$1.24 billion from the road segment and HK$1.12 billion from facilities management.
In addition that HK$235 million was after it had increased by 25 percent year-on-year.
In its stock exchange notice, the company said the seemingly healthy increase in construction profit was due mainly to non-occurrence of loss provision for certain construction projects booked in 2012.
As of June, the gross value of contracts on hand was HK$43.9 billion while the remaining value of the contracts was HK$33.5 billion.
Executive director Brian Cheng Chi-ming said the company has been experiencing increased labour and material costs for the past few years and it would continue to carefully assess risk when tendering for government projects.
The company’s construction subsidiaries are Hip Hing Construction, Vibro (HK), Hip Hing Engineering and Hip Seng Construction which was set up last year to work on New World Development’s projects.
According to the government gazette, the company’s subsidiaries won public works contracts worth HK$1.18 billion in the first half of 2013 but this figure pales when compared to the value of work bagged by its competitors such as China State, Gammon, Yau Lee and Leighton for the same period.
Most of that HK$1.18 billion was accounted for by one project, an Architectural Services Department contract worth HK$882 million for the design and construction of Yau Ma Tei Police Station.
As regards the company’s latest showcase project, the Gleneagles Hong Kong Hospital at Wong Chuk Hang, executive director Tsang Yam-pui said the joint venture in charge of the project would spend about HK$1 billion in the current financial year for consultants and construction work.
Tsang said the HK$5 billion budget for the project included the land premium of HK$1.69 billion.
The company also has businesses in energy, water supply and ports, most of which are located in mainland China.
Its facilities management business operates the Hong Kong Convention and Exhibition Centre and the Free Duty retail chain.
Its roads segment, with several toll roads in China, was affected by government policies on tolls such that attributable operating profit edged up by just two percent to HK$1.24 billion during the year.
On the toll discounts and toll free days imposed by the mainland authorities, executive director Tommy Cheung Chin-cheung said in exasperation: “No normal person can plan for it.”
Still the results expected from the toll policies were not satisfactory and that was why the Ministry of Transport was carrying out a public consultation on toll roads, Cheung said.
“We have sent back our views,” he said.