SINGAPORE - Mainboard-listed Hiap Seng Engineering on Thursday (July 4) responded to Singapore Exchange (SGX) queries on its financial results for FY2019 ended March 31.
The bourse had asked for the board of directors' assessment of the group's ability to operate as a going concern and whether its shares should be suspended, taking into account Hiap Seng's net current liabilities of about $20 million.
Hiap Seng said that based on cash-flow projections for fiscal 2020 to fiscal 2022 - that allow for liquidity and going concern assessment - conducted by an independent consultancy firm, its board is of the view that the group should be able to continue as a going concern.
It added that the group is actively discussing additional equity funding with potential investors and financial advisers.
Hiap Seng - a provider of engineering and plant-related services for the petroleum and petrochemical industry - said the general outlook for the process sector of the oil and gas industry has shown signs of recovery.
It has been receiving more job enquiries and expects to secure more projects with better margins in the future. With additional projects, the group will generate enough funds for its operational needs, it added.
Hence, its directors are of the opinion that its shares should not be suspended from trading.
SGX queried Hiap Seng on its trade and other receivables and asked the firm to provide an ageing schedule for its debtors.
In response to queries about its trade and other receivables, and ageing schedule for its debtors, Hiap Seng said that of its $25.3 million in trade receivables, $21.2 million was received in less than 60 days, whereas $2.4 million was received after more than 180 days. Based on this, the board said it is "confident that the recoverability of the trade receivables is not an issue".
The group explained that a provision of $5.8 million was to provide for foreseeable losses for three loss-making projects.
Hiap Seng said that its contract assets fell by 41.7 per cent and its contract liabilities increased by 373.4 per cent due to its adoption of Singapore Financial Reporting Standards (International) on April 1, 2018. Hence, it had to reflect contract assets and liabilities for FY2019 and comparative FY2018 statements.
Contract assets was for revenue that was recognised but not yet billed to customers, while contract liabilities are billings to customers for which revenue has yet to be recognised. The variances were due to timing of billings to customers and the recognition of related revenue.
SGX also flagged the group's borrowings of $30 million that was due in one year or less.
The group said this was categorised under bank borrowings and used for working capital, and added that the borrowings had been renewed.
It also said cost overrun - the main reason for its FY2019 gross loss - amounted to $15.4 million.
Its outstanding orders stood at $126 million and were expected to be fulfilled by June 30, 2020.
Hiap Seng was one of 12 mainboard companies added to SGX watch list in June following a mid-year review by the bourse.
Its shares closed flat at $0.082 on Wednesday.