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Chairman's Statement

On behalf of the Board of Directors of Knusford Berhad ("KB"), I am pleased to present the Annual Report and Audited Financial Statements of the Group for the Financial Year Ended 31 December ("FYE") 2017.

Overview of Financial Performance

For FYE 2017, the Group reported revenue of RM140.851 million, representing an increase of approximately RM11.018 million as compared to revenue of RM129.833 million in FYE 2016. The increase in revenue was mainly due to increase in work done for our construction projects and sale completed development units.

The Group's loss before tax decreased from RM16.935 million to RM9.338 million in the current financial year. The decrease in the loss before tax was mainly attributable to lower impairment loss on trade receivables recognised in FYE 2017 of RM0.592 million as compared to RM10.963 million in FYE 2016.

2017 was a challenging year for the construction and property development industries, upon which the Group substantially relies. Rising construction costs, property cooling measures taken by the Government and the overall market's lower consumer sentiment have contributed to a sluggish property market. In addition, there has been a mismatch in demand and supply in the affordable mid-range housing segment due to rapid socio-economic changes, urbanisation and evolving population structures.

Moving Forward

KB will continue to focus on its core business segments in trading of building materials and construction equipment, civil construction and engineering, property development and investment.

The trading division is expected to continue to be a stable source to contribute to the Group's revenue. The Group has taken and will continue to take measures to be more cost effective and competitive in order to sustain its business in this market segment.

Our construction division is showing good signs of sustained progress in the new financial year. The Group had recently been awarded the following 2 projects:

  1. On 15 January 2018, the Group received a LOA for its appointment as Sub-Contractor for the construction and completion of Bored Piling Works at DUKE Highway with a contract value of RM63.0 million
  2. On 9 February 2018, the Group received a Letter of Award ("LOA") for the construction and completion of "552 Unit Rumah Teres 2 Tingkat" for Phases 1, 2 and 3A at Danga Sutera, Tampoi, Johor Bahru, with the LOA for Phase 3B to be awarded in due course. The total contract value for this project is RM90.5 million and this project is expected to be completed in 2019.

The awarded Projects are expected to contribute positively to KB's earnings and net assets for FYE 2018. The Group will continue to source and compete for good construction projects in the country.

In respect of property development, the Board is cautiously optimistic that the property market will improve, especially in the affordable segment. Market researches show that creative designs and innovative concept developments with moderate pricing stand a better chance to gain market share. The Group has begun to explore the development and construction of affordable housing projects, with the intention that such participation will deliver business sustainability while not compromising its income and profits margin.

The property division will continue to develop its land bank in Kajang. We are in the midst of exploring building various types of premium housing units to complement KB's existing property development in Kajang. Meanwhile, the Group will embark on constructing 304 units of Rumah Selangorku in the same locality, as mandated by the authorities based on current and past property projects. The Gorup expects that this low-cost project may result in significant losses for KB. We are aware of the inherent risks involved and will take numerous measures to mitigate the downside.

The Group will leverage on its experienced management team to pursue new projects, investments and joint ventures that match our business objectives. We will adopt a cautious approach to enhance its order book by exploring business opportunities through strategic alliances and partnerships with business partners and associates.

Industry Overview and Prospects

In 2017, Malaysia's economic growth performed fairly well, driven by resilient domestic demand and an improvement in both investment and consumption in the country.

In the building and construction sectors, construction projects worth RM350 billion are expected to be awarded in the next 3 years with the announcement of Budget 2018. RM2.2 billion has been allocated for public housing such as PR1MA, and other projects such as MRT3 will definitely spur the domestic construction industry. Malaysia will also be one of the largest beneficiary countries from the "One Belt One Road" program initiated by the People's Republic of China.

The property market in Malaysia is looking to be stable and growing at a moderate pace in 2018. With a growing population and rising incomes, the current excess property units will be taken up over time, with robust property development activities returning in the near future. This is especially so in the affordable property segment.

As such, the Group will keep repositioning itself to take the advantage of and reap the benefits from opportunities made available by the Government, in order for KB to maximise its revenue in 2018 and beyond.

The Board will continue to seek and explore for new business opportunities and to tender for new projects in Malaysia as well in South East Asian countries in its endeavour to generate sustainable growth and income for the Group.

Corporate Governance

The Board recognises the importance of adopting sound corporate governance and is committed to meeting all applicable rules, regulations, norms and standards to ensure that we meet the expectations of all stakeholders in this regard.

Acknowledgment

On behalf of the Board, I would like to express my gratitude to all our valued customers, partners, regulators, bankers, business associates and shareholders, for their continuous support and confidence in the Group.

I would also like to extend my gratitude to the Directors for their undivided support and manifold contribution and my sincere appreciation to the Management and staff for their hard work and loyal dedication to the Group.

DYAM Tunku Ismail Ibni Sultan Ibrahim
Chairman