Keong Hong : Annual Report 2023

BUILDING

RESILIENCE FOR THE FUTURE

KEONG HONG HOLDINGS LIMITED ANNUAL REPORT 2023

CONTENTS

1. Chairman's Message

1. Financial Highlights

1. Financial and Operations Review

1. Board of Directors

1. Key Management
2. Corporate Information
3. Corporate Governance Report

1. Directors' Statement

1. Independent Auditors' Report

1. Financial Statements

151 Analysis of Shareholdings

153 Notice of Annual General Meeting

157 Additional Information on Directors Seeking Re-election

Proxy Form

INCREASE BUSINESS RESILIENCE

AND FUTURE READINESS AS WE ADVANCE FORWARD

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CHAIRMAN'S

MESSAGE

DEAR SHAREHOLDERS,

In the past year, we have faced a very challenging environment despite the overall economic conditions remaining fairly stable. Singapore's economy grew by a modest 1.1% in 2023, decreasing from the 3.8% growth in 2022. The construction sector, however, was one of the best performing sectors, registering a 5.2% expansion in 2023, stronger than the 4.6% growth in 2022.1 Despite this seemingly positive state of the economy, inflationary pressures persisted, weighing down profits. Rising interest rates made the cost of borrowing more expensive, in turn impacting consumer demand. Furthermore, the economic uncertainty caused by geo-political tensions has dampened sentiment. Despite the very unfavourable operating environment, Keong Hong succeeded in narrowing its gross loss, managing costs and improving its operations. We have rationalised some of our assets to utilise and recycle our cash more efficiently and to place us in a stronger position to face the ongoing challenges ahead and for future investment opportunities.

FINANCIAL HIGHLIGHTS

We closed our financial year ended 30 September 2023 ("FY2023") with revenue of $176 million, a 18.9% increase as compared with revenue of $148.1 million in the financial year ended 30 September 2022 ("FY2022"). We recorded a negative gross margin of 11.3% following on the gross loss of $19.9 million as compared to negative gross profit margin of 20.8% and gross loss of $30.8 million in FY2022. The Group's other income of $16.9 million was an increase of 80.6% over the $9.4 million other income in FY2022. This was mainly on account of the one-off gain from the disposal of two investment properties in Osaka, Japan. The Group also recorded a net loss of $4.8 million from its share of results of joint ventures, and the Group's share of net losses of associates increased to $7.8 million in FY2023 as compared to $5.5 million in FY2022. Consequently, the Group sustained a net loss after tax of $50.8 million as compared to a net loss after tax of $46.6 million in FY2022.

On the Group's financial position, our cash and cash equivalents were $12.7 million ($22.6 million in FY2022), with the Group registering a deficit in operating cash flow before working capital changes of $31.3 million. Net asset value per share stood at 27.4 cents as at 30 September 2023.

The Board is not proposing any dividends for the financial year FY2023 considering the Group's financial performance, working capital requirements and need for future funds for possible investment and growth opportunities. The Group remains committed to ensuring its financial viability especially given the uncertain economic outlook in the immediate future.

BUILDING CONSTRUCTION - OPTIMISTIC AMIDST CHALLENGES Despite the robust construction sector which has contributed to Singapore's economic growth, increased costs associated with higher fuel and water expenses as well as manpower constraints remained. We have performed commendably given these challenges.

1 Ministry of Trade and Industry, "MTI Maintains 2024 GDP Growth Forecast at "1.0 to 3.0 Per Cent", 15 February 2024.

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We are pleased to report that our projects have progressed smoothly. Both Wilshire Residences and Sky Everton have obtained their Temporary Occupation Permit ("TOP") in August 2023. In March 2023, we were awarded our first mixed-use commercial construction project in the Central Business District, Solitaire on Cecil worth $118 million. The project involves the erection of a 20-storey office building comprising restaurants on the first storey with two basement carparks on Cecil Street. The construction commenced in May 2023. Our newest residential construction project, Sky Eden @ Bedok, is on track for completion in 2025. This latest project enhances our portfolio of mixed commercial and residential developments. With respect to our public sector projects, the new National Skin Centre at Mandalay Road was officially opened on 25 October 2023. The Punggol Regional Sports Centre, and the additions and alterations work to the Grand Hyatt Hotel Singapore have made good headway after initial delays post- COVID 19 which had set back the completion by several months. We were also awarded the Tengah Plantation Contract 5 main contract work by the Housing and Development Board amounting to $293.7 million, which places us in a strong position as we head into 2024 and adds to our order book currently valued at approximately $658 million. With our latest portfolio of projects, the split between residential projects and commercial projects is approximately 55% to 45%.

The Building and Construction Authority had forecast the average annual construction demand for 2024 at between $32 billion and $38 billion driven by public sector, industrial and infrastructure projects such as Build-To-Order flats, cross-island MRT Line contracts, Changi Airport's Terminal 5 construction, Tuas Port development, and major road enhancements and drainage improvement works. Private sector construction demand was projected to be between $14 billion and $17 billion.2 As such, the sector has been one of the growth drivers for the economy this year, which has benefited us. The outlook for this sector remains optimistic in the near term. Ongoing projects and new investments in renewable energy, transport, housing, and industrial works will sustain the growth of this sector.

As such, we will be actively seeking new opportunities, particularly in the healthcare and public housing sector, leveraging on our strong track record in such projects, to strengthen our project pipeline.

PROPERTY DEVELOPMENT AND INVESTMENT - CAUTIOUS BUT CONFIDENT

The increased Additional Buyer's Stamp Duty (ABSD) rates, especially for foreigners purchasing residential property, higher costs of borrowing, a slowing global economy and weakening consumer sentiment, have resulted in the market showing some signs of deceleration. Prices of private residential properties increased marginally by 6.8% in 2023,3 moderating from the 8.6% increase in 2022. Developers sold 6,421 private residential units for the whole of 2023 as compared to 7,099 units in the previous year.

1. Building and Construction Authority, "Steady Demand for the Construction Sector Projected for 2024", 15 January 2024.
2. Urban Redevelopment Authority, "Release of 4th Quarter 2023 real estate statistics", 26 January 2024.

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CHAIRMAN'S

MESSAGE

The outlook for the property market in the nearer term is resultingly more cautious. With more regulatory scrutiny being accorded to purchases of high-end property in a bid to counter money laundering activities, overall buying sentiment may be impacted. Higher interest rates and increased ABSD rates are expected to negatively affect the mass market segment as well. With limited land supply and ever-increasing competition for prime locations, the opportunities for securing property development projects which will afford good returns on investment are limited. Nevertheless, we will continue to seek opportunities with good value proposition, in partnership with reputable and strong players in the industry, while remaining prudent in any land acquisitions.

HOTEL DEVELOPMENT AND INVESTMENT - TOURISM REVIVAL The Maldives recorded visitor arrivals of 1.9 million from January to December 2023,4 as compared to 1.7 million over the same period last year (12.1% increase). While the tourism sector has been strong, finance and operating costs have escalated which have impacted our share of profits from our two hotel investments, Mercure Maldives Kooddoo Hotel and Pullman Maldives Maamutaa Resort in which we have a 49% equity interest.

Tourism has not yet rebounded completely to pre-COVID levels. Airlines are still finding it challenging to ramp up operations given labour shortages, higher fuel, and other operating costs. Furthermore, travel may be affected by the threats of a global economic slowdown and an increasingly tense geopolitical

landscape with the ongoing Russian-Ukraine conflict, the more recent Israeli-Hamas war and USA-China impasse. As such, we are cautiously optimistic of the performance of this sector which may impact our hotel properties and influence our future hotel investment strategy.

CORPORATE UPDATES - RATIONALISING ASSETS FOR FUTURE OPPORTUNITIES

The Group disposed of its two commercial properties in Honmachi and Minamihorie, Osaka, Japan in February 2023. The properties were non-core assets of the Group, which have generated rental income since they were acquired in 2016 and 2017 respectively. With the completion of the sale and the realisation of the value of these properties, the Group has improved its liquidity and enhanced working capital to meet its financial obligations and for future investment and development opportunities.

One of the Group's subsidiaries, Hansin Timber Specialist and Trading Pte. Ltd. ("Hansin") has been wound-up pursuant to a creditors' voluntary liquidation. There is no significant development in relation to the liquidation to-date that would have any material impact on the Group's financial position. With the creditors' voluntary liquidation of Hansin, the Group is now focused on its core business activities.

In respect of the Group's 6.25 per cent notes due in 2023 ("Series 3 Notes") issued pursuant to the $200,000,000 Multicurrency Term Note Programme, we are pleased to announce that we have

4 Ministry of Tourism, Republic of Maldives.

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fully repaid the principal amount of $35,250,000 which matured in August 2023. As a result, our net debt position has improved.

BUILDING RESILIENCE

The higher building and construction, operating, manpower and borrowing costs coupled with a slowing economy have necessitated a continued focus on minimising costs, increasing productivity, and enhancing efficiency. Digitalisation and automation remain priorities to reduce reliance on labour, given the shortage of and challenges in importing skilled labour. Building on the digitalisation experience gained from implementing Aptiv8 IT Solutions and AirSquire's cloud-based360-degree virtual sites at Grand Hyatt Hotel, we are continuing our IDD journey with the experimental implementation of Doxa Connex's procurement-to- payment system company-wide, and Autodesk Construction Cloud on new projects. In Maldives, Lumitics Artificial Intelligence (AI) smart food waste tracker has recently been installed at Pullman Maldives Maamutaa Resort and Mercure Maldives Kooddoo Hotel offering insights to chefs on how to reduce their food waste by up to 40% and food cost by 2% to 8%.

We remained committed to the safety and betterment of our workers. We invested in worker education, particularly in areas of work and health safety protocols, and in upskilling initiatives to enable them to function safely, effectively and efficiently within the organisation.

SOCIAL RESPONSIBILITY AND SUSTAINABILITY

In terms of our social programmes, we supported Institute of Technical Education's ("ITE") Work-Learn Technical Diploma programme. We are going to provide career development training for another ITE trainee under the Work-Learn Technical Diploma programme for the academic year starting April 2024.

On the sustainability front, the solar panel installation at our Chin Bee factory has been commissioned and begun providing green energy since July 2023, supplementing the power requirement at the production floors and administration blocks of 20 Chin Bee Drive and 21 Fourth Chin Bee Road. The solar panels are capable of generating 800 amperes of green electricity and offsetting up to 215 tons of CO2 per year. New sustainability initiatives have also been implemented in Maldives. Food composters have been installed at both the resort hotels to convert food waste to compost as fertilisers for the gardens.

Our conservation and other sustainability efforts and goals can be found in greater detail in our Sustainability Report 2023.

COMMITMENT TO LOOK FOR GROWTH

We will closely monitor costs, tightly manage our operations, keenly look for growth opportunities and unwaveringly work towards improvement in all aspects of our business. While it is anticipated to be a difficult year ahead for the reasons already cited, we have navigated through numerous downturns, emerging stronger and more resilient. There is no reason to doubt that we can do so once again. Going forward, we are cautiously optimistic given the fact that there will be higher revenue recognition from the new projects awarded.

APPRECIATION AND ACKNOWLEDGEMENTS

I would like to thank the management, staff and our Board of Directors for their hard work and contributions this past year. I would like to welcome Ms Wong Ee Kean to our Board of Directors. Ms Wong will bring considerable expertise and experience to the Board. Her appointment as Non-Executive Independent Director marks the Group's inaugural appointment of a female director.

My heartfelt thanks go out to Mr Chong Weng Hoe, who stepped down from the Board at the end of February 2024 after 12 years of committed service. Mr Fong Heng Boo has assumed the role of Lead Independent Director in Mr Chong's place.

I would also like to extend my thanks to Mr Chiang Yi Shin, our Chief Financial Officer, for his service to the Group, as he moves on to other opportunities.

Last but not least, thank you to our business partners, associates, customers, and shareholders for continuing to support the Group. We remain committed to improving our financial performance, strengthening our organisation, and realising our potential to bring greater value to all our stakeholders.

LEO TING PING RONALD

Chairman and Chief Executive Officer