Hiap Seng Engineering narrows Q2 losses, to undergo restructuring

HIAP Seng Engineering narrowed its losses to S$8.5 million from S$22.3 million for the second quarter ended Sep 30, 2019 on the back of higher revenue and lower operating costs.

Turnover rose 35.2 per cent to S$36.2 million mainly owing to higher recognition of revenue. Hiap Seng is a service provider of mechanical engineering, plant fabrication and installation, and plant maintenance to the oil and gas, petrochemical and pharmaceutical industries.

Gross loss for the watch-listed group narrowed to S$5.4 million from S$17.2 million, a change of 68.8 per cent, due to lower operating costs. The gross loss reported this quarter included provision for liquidated damages and claims amounting to S$4 million, which are currently under negotiation with the customer.

Loss per share was 2.8 Singapore cents, compared with 7.34 cents a year ago.

As at Sep 30, the group's current liabilities exceeded current assets by S$30.1 million. Current liabilities included borrowings from banks of S$32.2 million, trade and other payables of S$34.2 million, and contract liabilities of S$9.9 million which are invoiced to customers but have yet to be recognised as revenue.

In view of the current situation, Hiap Seng is embarking on a restructuring and realignment exercise that includes the disposal of some of its assets. Assets that the company is considering for disposal include freehold land and buildings in Thailand, and leasehold properties in Singapore.

The exercise is expected to free up cash, which is needed as working capital for existing projects, as well as for repayment to existing creditors, said Hiap Seng.

The group has also undergone various cost-cutting measures such as reduction of its headcount and streamlining of its operating processes.

Hiap Seng has appointed a financial consultant for a financial position review and viability assessment of the group. However, the board is unable to conclude if the company can operate as a going concern at this stage.

It noted that the group has not recorded in its financial statements unrealised surplus of about S$67 million on revaluation of its properties, based on valuations carried out as at March 31, 2019.

"The outlook for process sector of the oil and gas industry is showing signs of improvement, which is likely to translate to higher capital expenditure by major customers in the near to medium term. However, the group continues to face a challenging operating environment with intense competition. The group has lost some new projects due to the fierce competition and its current financial position," said Hiap Seng.

The outstanding order book stood at S$90 million, with about 80 per cent to be recognised as revenue in FY2020, while the remaining amount is expected to be recognised by June 30, 2020.

Hiap Seng intends to focus on its plant construction and maintenance segment, for which it has a strong track record, and scale down the engineering, procurement and construction projects.

Hiap Seng shares last traded at S$0.02 on Tuesday.