Industry Prospects

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We are encouraged by the growth of our Group, and we remain positive about our Group's business prospects. At the same time, we are mindful that the business environment remains challenging.

We have identified the following trends and factors that are expected to drive our Group's growth in the foreseeable future:

Increase in the demand for air-conditioning systems and switchgears

Our Directors believe that given the tropical climate of Singapore and its economic improvements over the years, air-conditioning systems have evolved from being luxury items used in various commercial and residential properties, to becoming commonplace items. According to the Singapore Department of Statistics ("Singstat") on consumer durables in households for the period from 1993 to 2003, the household ownership of air-conditioning systems increased from 35% from 1993 to 72% in 2003. For HY2005, there has not been any significant reduction or increase in the cost price of the airconditioning units. However, there was a reduction in our selling price, as we increased our marketing efforts. Going forward, our Directors do not expect signifi cant fluctuations in the costs of our airconditioning units for the next 12 months.

Further, many commercial and residential estates are due for upgrading, and this includes the routine testing, maintenance or replacement of switchgears. It is a general industry practice for switchgears to be replaced every 15 to 20 years.

In addition, our Directors also believe that with the rapid expansion of the economies of the PRC and India, there will also be huge potential for the growth in the consumption of air-conditioning systems and switchgears in those respective countries. Our Directors believe that the following factors will increase the demand for air-conditioning systems and switchgears.

Singapore Government's drive for upgrading programmes

The Singapore Government launched its Main Upgrading Programme ("MUP") in 1992 and its Interim Upgrading Programme ("IUP") in 1993, initiating physical upgrading exercise for its HDB flat units in the more mature estates. The Singapore Government also launched the Lift Upgrading Programme ("LUP") in 2001 to upgrade existing lifts to serve every floor, as well as the installation of additional lifts. These programmes involve upgrading works which include, inter alia, the replacement and upgrading of switchgears and switchgear related equipment.

Our Directors believe that with the potentially large number of HDB flats affected, programmes such as MUP, IUP, LUP and various other upgrading projects will increase the demand for both our Retail and Commercial business segments in both the air-conditioning and switchgear industries.

Increase in the demand for public and private residential properties

Our Directors believe that (i) the amendments to the Residential Property Act (Cap. 274) (including the raising of the housing loan financing limit ceiling and allowing the use of CPF funds to be used for downpayment on the purchase price of a property hence making it more affordable to own properties and also for existing property owners to upgrade their homes), as well as (ii) the easing of restrictions on foreigners who intend to purchase properties in Singapore (following the Singapore Government's drive to attract foreign talent to reside and work in Singapore), will facilitate greater demand for public housing from HDB and private properties.

Our Directors believe that this trend in changes of home ownership will result in an increase in demand for new air-conditioning systems and switchgears.

Increasing trends towards environmentally-friendly systems

Certain countries have implemented new standards and regulations for environmentally-friendly air-conditioning systems and have thus discouraged the continued use of air-conditioning systems which are not compliant with their new standards and regulations. The move to a higher standard for air-conditioning systems which is environmentally-friendly presents new opportunities for us both in the area of gas-replacement and also in the installation of new air-conditioning systems which are compliant with the new standards.

Economic growth in the PRC and India

Stronger economic growth in the PRC and India, as well as the continued industrialisation of these countries, has resulted in a higher standard of living and an increase in the purchasing power of their consumers. This in turn has led to a higher demand for basic and luxury consumer items. In addition, the rapid economic expansion of these countries have also resulted in a construction boom in the residential and commercial property markets, resulting in an increase in demand not only for airconditioning systems but also switchgears as well.

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