JE Cleantech(JCSE) - 2024 Q2 - Quarterly Report

Overview Company and Financial Overview The company saw significant growth in H1 2024, with revenue rising to SGD 10.7 million and net income doubling - The Group is principally engaged in the sale of cleaning systems and the provision of centralized dishwashing services in Singapore and Malaysia[5] Financial Highlights for the Six-Month Periods Ended June 30 | Metric | 2023 (SGD) | 2024 (SGD) | Change | | :--- | :--- | :--- | :--- | | Revenue | 8.8 million | 10.7 million | +21.9% | | Net Income | 0.3 million | 0.6 million | +100% | Statement of Operations Data (Six-Month Periods Ended June 30) | | 2023 (SGD'000) | 2024 (SGD'000) | | :--- | :--- | :--- | | Revenues | 8,814 | 10,742 | | Gross profit | 2,098 | 2,834 | | Income from operations | 192 | 567 | | Net income | 279 | 598 | Key Factors Affecting Operations Risk Factors and Business Dependencies Financial performance is influenced by customer concentration, non-recurring revenue, and raw material cost volatility - Dependence on major customers increased, with the top five customers accounting for 75.9% of revenue in H1 2024, up from 63.3% in H1 2023[9] - The sale of cleaning systems is non-recurring and project-based, introducing uncertainty in future revenue streams[10] - Profitability is sensitive to raw material cost fluctuations, as fixed-price contracts limit passing on cost increases[11] Management's Discussion and Analysis (MD&A) Revenue Analysis Total revenue grew 21.9% to SGD 10.7 million, driven by precision cleaning system sales, despite a decline in order backlog - The total revenue increase of approximately SGD 1.9 million (21.9%) was mainly due to a SGD 1.6 million increase from the sale of cleaning systems[17] Revenue by Business Sector (Six-month periods ended June 30) | Business Sector | 2023 (SGD'000) | 2024 (SGD'000) | % of Total (2024) | | :--- | :--- | :--- | :--- | | Sale of cleaning systems | 5,426 | 6,981 | 65.0% | | - Sale of precision cleaning systems | 3,183 | 5,403 | 50.3% | | - Sale of other cleaning systems | 2,015 | 1,230 | 11.5% | | Centralized dishwashing services | 3,388 | 3,761 | 35.0% | | Total Revenue | 8,814 | 10,742 | 100.0% | Movement in Orders Backlog (Cleaning Systems) | | Period ended June 30, 2023 (SGD'000) | Period ended June 30, 2024 (SGD'000) | | :--- | :--- | :--- | | Outstanding contract value (start) | 29,050 | 25,280 | | New contract value | 5,986 | 2,686 | | Revenue recognized | (5,198) | (6,981) | | Outstanding contract value (end) | 29,838 | 20,985 | Cost of Revenues Cost of revenues rose to SGD 7.9 million in H1 2024, consistent with revenue growth, led by costs for cleaning systems - The main components of cost of revenues include raw materials, labor costs, sub-contracting costs, and production overhead[21] Cost of Revenues by Business Sector (Six months ended June 30) | Cost Component | 2023 (SGD'000) | 2024 (SGD'000) | % of Total (2024) | | :--- | :--- | :--- | :--- | | Cost of sale of cleaning systems | 3,796 | 4,615 | 58.4% | | Cost of centralized dishwashing | 2,920 | 3,293 | 41.6% | | Total Cost of Revenues | 6,716 | 7,908 | 100.0% | Gross Profit and Gross Profit Margin Gross profit increased to SGD 2.8 million and the overall margin improved to 26.4%, led by the precision cleaning systems segment - The increase in total gross profit was mainly due to higher revenue from the more profitable precision cleaning systems sub-segment[24] Gross Profit and Margin by Business Sector (Six months ended June 30) | Business Sector | Gross Profit 2023 (SGD'000) | Gross Profit Margin 2023 (%) | Gross Profit 2024 (SGD'000) | Gross Profit Margin 2024 (%) | | :--- | :--- | :--- | :--- | :--- | | Sale of precision cleaning systems | 1,083 | 34.0 | 1,943 | 36.0 | | Provision of centralized dishwashing | 468 | 13.8 | 468 | 12.4 | | Total/Overall | 2,098 | 23.8 | 2,834 | 26.4 | Operating Expenses Total operating expenses rose to SGD 2.3 million, driven by higher marketing spend and increased staff costs Selling and Marketing Expenses Selling and marketing expenses more than doubled to SGD 86,000 due to increased promotional activities - The increase was primarily attributable to a rise in promotion and marketing activities for the company's products and services[26] Breakdown of Selling and Marketing Expenses (SGD'000) | Expense Item | H1 2023 | H1 2024 | | :--- | :--- | :--- | | Promotion and marketing expenses | 30 | 70 | | Transportation expenses | 8 | 16 | | Total | 38 | 86 | General and Administrative Expenses General and administrative expenses rose to SGD 2.2 million, mainly from higher staff costs due to CEO pay and management bonuses - The increase in staff costs was mainly due to a revision of the CEO's remuneration package and a special bonus for key management[29] Breakdown of General and Administrative Expenses (SGD'000) | Expense Item | H1 2023 | H1 2024 | | :--- | :--- | :--- | | Staff costs | 976 | 1,302 | | Depreciation | 183 | 114 | | Legal and professional fees | 310 | 341 | | Total | 1,868 | 2,181 | Other Income and Expenses Net other income increased to SGD 205,000, driven by new interest income and foreign exchange gains - The decrease in government grants was mainly because the Jobs Support Scheme ended, while new income came from fixed deposits and FX gains[36][37] - Interest expense increased slightly due to higher interest rates on bank loans[37] Breakdown of Other Income (SGD'000) | Income Source | H1 2023 | H1 2024 | | :--- | :--- | :--- | | Interest income | - | 107 | | Foreign exchange gain | - | 227 | | Government grants | 307 | 165 | | Total Other Income | 463 | 554 | Income Tax Income tax expense more than doubled to SGD 174,000, in line with the growth in profit and taxable income - The company is subject to income tax in Singapore at a statutory rate of 17%, and the tax increase aligned with higher profit[41][42] Breakdown of Income Tax (SGD'000) | Tax Component | H1 2023 | H1 2024 | | :--- | :--- | :--- | | Current tax expense | 74 | 238 | | Deferred tax | - | (64) | | Total | 74 | 174 | Net Income Net income more than doubled to approximately SGD 0.6 million, driven by strong revenue growth and improved gross margins - Net income increased from approximately SGD 0.3 million in H1 2023 to SGD 0.6 million in H1 2024[6][43] Liquidity and Capital Resources Cash Flow Analysis Cash decreased by SGD 0.3 million as operating activities consumed cash, offset by inflows from financing activities - Net cash used in operating activities was SGD 0.5 million, a reversal from a SGD 0.7 million inflow in H1 2023, due to working capital changes[48][49] - Net cash from financing activities was SGD 0.7 million, mainly from a net drawdown of bank loans[54][55] Summary of Cash Flows (Six months ended June 30, in SGD'000) | Cash Flow Activity | 2023 | 2024 | | :--- | :--- | :--- | | Net cash from/(used in) operating activities | 665 | (527) | | Net cash used in investing activities | (244) | (419) | | Net cash (used in)/from financing activities | (2,045) | 693 | | Net decrease in cash | (1,676) | (282) | | Cash at end of period | 4,885 | 4,807 | Working Capital Management Accounts Receivable Net accounts receivable increased slightly to SGD 5.0 million, with improved collection efficiency but higher aged receivables - Average accounts receivable turnover days decreased from 96.7 to 82.8 days due to faster customer collections[62][63] Accounts Receivable Ageing Analysis (SGD'000) | Ageing | Dec 31, 2023 | June 30, 2024 | | :--- | :--- | :--- | | Within 30 days | 3,923 | 3,134 | | Between 31 and 60 days | 758 | 1,484 | | More than 90 days | 56 | 307 | | Total accounts receivable, net | 4,775 | 4,978 | Inventory Inventory levels decreased to SGD 12.9 million, and turnover days improved due to higher sales of precision cleaning systems - Average inventory turnover days decreased from 346.7 to 311.2 days, reflecting more efficient inventory management[68][69] Inventory Breakdown (SGD'000) | Category | Dec 31, 2023 | June 30, 2024 | | :--- | :--- | :--- | | Raw materials | 10,136 | 9,795 | | Work-in-progress | 3,062 | 2,259 | | Finished goods | 875 | 844 | | Total | 14,073 | 12,898 | Accounts and Other Payables Accounts payable decreased to SGD 1.1 million as the company accelerated payments to suppliers Accounts Payable Turnover | Metric | Dec 31, 2023 | June 30, 2024 | | :--- | :--- | :--- | | Total Accounts Payable (SGD'000) | 1,396 | 1,046 | | Average accounts payable turnover days | 42.4 | 27.1 | Other Working Capital Items Contract liabilities decreased to SGD 5.1 million, while total bank indebtedness stood at SGD 8.8 million - Contract liabilities decreased to SGD 5.1 million as of June 30, 2024, from SGD 7.0 million at year-end 2023[74] - As of June 30, 2024, total bank indebtedness was SGD 8.8 million[75] - Warranty liabilities remained stable at SGD 22,000 as of June 30, 2024[76] Commitments Lease and Capital Commitments The company has future lease receivables of SGD 250,000 and no capital commitments as of June 30, 2024 - As of June 30, 2024, the Group did not have any capital commitments[80] Future Minimum Lease Receivables (as Lessor) | Period | Amount (SGD'000) | | :--- | :--- | | Within one year | 193 | | After one but within two years | 57 | | Total | 250 | Capital Expenditures Capital Expenditures Analysis Capital expenditures decreased to SGD 0.1 million in H1 2024, primarily for replacing obsolete equipment - Capital expenditures were approximately SGD 0.1 million for H1 2024, down from SGD 0.2 million in the prior-year period[81] - The expenditures mainly related to the replacement of obsolete equipment[81] Critical Accounting Policies and Estimates Accounting Policies Overview Financials are prepared under U.S. GAAP, with key estimates in receivables, inventory, and revenue recognition - The company is an "emerging growth company" and has elected to use the extended transition period for new accounting standards[83] - Significant accounting estimates include allowances for receivables, inventory valuation, and asset useful lives[84] - Revenue is recognized under ASC Topic 606, using a five-step model[85][86] Impact of Inflation Inflation Impact Moderating inflation in Singapore has not materially affected the company's profitability or operating results to date - The MAS core inflation moderated to 3.0% y-o-y in Q2 2024, and has not materially affected the company's results[93] Market Risk Disclosures Market Risk Factors The company is exposed to interest rate, credit, liquidity, and foreign exchange risks, with no hedging in place - The company is exposed to interest rate risk on its variable-rate bank loans[94] - Credit risk is managed through credit approvals and monitoring of customer accounts[95] - Foreign exchange risk arises from fluctuations between the SGD and the USD reporting currency, with no hedging transactions[97] Financial Statements Unaudited Interim Condensed Consolidated Balance Sheets Total assets decreased slightly to SGD 34.5 million, while lower liabilities led to an increase in shareholders' equity Consolidated Balance Sheet Summary (SGD'000) | | Dec 31, 2023 | June 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | 26,659 | 25,711 | | Inventory | 14,073 | 12,898 | | Total Assets | 35,493 | 34,538 | | Total Current Liabilities | 13,757 | 12,505 | | Contract liabilities | 6,960 | 5,061 | | Total Liabilities | 18,780 | 17,256 | | Total Shareholders' Equity | 16,713 | 17,282 | Unaudited Interim Condensed Consolidated Statements of Income Net income for H1 2024 more than doubled to SGD 598,000, increasing net income per share to SGD 0.12 Consolidated Statement of Income Summary (Six-Month Periods Ended June 30, in SGD'000) | | 2023 | 2024 | | :--- | :--- | :--- | | Revenues | 8,814 | 10,742 | | Gross profit | 2,098 | 2,834 | | Income from operations | 192 | 567 | | Net income | 279 | 598 | | Net income per share (basic and diluted) | 0.06 | 0.12 | Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to SGD 17.3 million, driven by net income earned during the period Changes in Shareholders' Equity (H1 2024, in SGD'000) | | Amount | | :--- | :--- | | Balance as of January 1, 2024 | 16,713 | | Net income | 598 | | Foreign currency translation adjustment | (29) | | Balance as of June 30, 2024 | 17,282 | Unaudited Interim Condensed Consolidated Statements of Cash Flows The company had a net cash outflow of SGD 282,000, as operating cash use was offset by financing inflows Consolidated Statement of Cash Flows Summary (Six-Month Periods Ended June 30, in SGD'000) | | 2023 | 2024 | | :--- | :--- | :--- | | Cash provided by/(used in) operating activities | 665 | (527) | | Cash used in investing activities | (244) | (419) | | Cash (used in)/provided by financing activities | (2,045) | 693 | | Net change in cash and cash equivalents | (1,676) | (282) | Notes to Financial Statements Notes reveal significant customer concentration and that bank loans are secured by company assets and a director's guarantee - The company has significant customer concentration, with one customer accounting for 48% of H1 2024 revenue and 60% of receivables[186][187] - Bank loans are secured by a corporate guarantee, company assets, and a personal guarantee from a director[161] Revenue by Segment (H1 2024, SGD'000) | Segment | Revenue | Gross Profit | | :--- | :--- | :--- | | Cleaning Systems | 6,981 | 2,366 | | Dishware Washing Services | 3,761 | 468 | | Total | 10,742 | 2,834 |