Cover HHS AR2012 OP - malaysiastock.biz About Hock Heng Statement on Internal Control 18 Corporate...

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Annual Report2012

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Lot 197, Jalan Sungai Putat, Batu Berendam, 75350 Melaka.

Tel: 06 317 2028 Fax: 06 317 9324

Email: [email protected]

Website: www.hockheng.com.my

About Hock Heng

Statement on Internal Control 18

Corporate Information 02

Corporate Structure 03

Profile of Directors

04

Chairman’s Statement

05

Financial Highlights

08

Corporate Governance Statement 11

Statement on Risk Management and Internal Control

21

Contents

Hock Heng Stone Industries Bhd. (“Hock Heng”) is one of the major manufacturers of dimension stones in Malaysia.

Hock Heng’s business activities include sourcing, processing and distributing a wide range of dimension stones including: granite, marble, sandstone and slate. Hock Heng’s products are mainly used for a wide array of applications in the commercial and residential properties, such as facade walls, flooring, staircases, monuments, furniture, pillars, garden sets and landscaping.

Hock Heng caters to retail and commercial customers through its manufacturing plant in Melaka as well as sales offices cum secondary processing plants located in Selangor, Pahang and Johor.

Among the Group’s project portfolio includes the supply and installation of dimension stones for external infrastructure and landscaping for Kuala Lumpur City Centre, carving panels for the Prime Minister’s office in Putrajaya, marble tiles for internal floor and wall finishing of the 26-storey UEM tower in KL Sentral and etc.

Contacts

Lot 197, Jalan Sungai Putat,Batu Berendam, 75350 Melaka.

Tel : 06. 317 2028Fax : 06. 317 9324

Email : [email protected] : www.hockheng.com.my

Hock Heng Stone Industries Bhd.


Tel : 06. 317 2028Fax : 06. 317 4264

Hock Heng Granite Sdn. Bhd.

Lot 13, Jalan TUDM,Seksyen U6,

Kg. Baru Subang,40150 Shah Alam,

Selangor Darul Ehsan.Tel : 03. 7843 9933Fax : 03. 7845 6753

Hock Heng Marketing (KL) Sdn. Bhd.(In progress of renovation)

20, PTD 111402,Jalan Plentong 8,

Sri Plentong Industrial Park,81750 Masai,

Johor Darul Takzim.Tel : 07. 386 8028 / 9028

Fax : 07. 386 3028

Hock Heng Marketing(Southern Region) Sdn. Bhd.

10, Jalan Industrial Semambu 9/3,Cocopalm Industrial Park,

25300 Kuantan,Pahang Darul Makmur.

Tel : 09. 560 2212 / 2213Fax : 09. 560 2218

Hock Heng Stone (East Coast) Sdn. Bhd.

From ourManaging Director

“Over the past two decades, Hock Heng has grown to be an established player in the dimension stones industry. During this period, we have not only moved up the value chain from processing smaller slabs to now handling large 20-tonne blocks, but also diversified our market segments to include both commercial and residential development.”

“Our industry experience has enabled us to build a strong reputation in the industry and to grow our business further.”

Low Kim HockManaging DirectorHock Heng Stone Industries Bhd.

Audit Committee Report 23

Directors’ Responsibility Statement 27

Financial Statements for the financial year ended 31 December 2012 28

List of Properties 81

Analysis of Shareholdings 85

Notice of Annual General Meeting 87

Notice Of Nomination Of Auditors 90

Form of Proxy

Hock Heng Stone Industries Bhd. (840040-H)2 Annual Report 2012

Corporate information

Audit Committee

Chong Peng Khang (Chairman)Yap Koon Roy

Peter Yong Kuen Fook

Nomination Committee

Peter Yong Kuen Fook (Chairman)Chong Peng Khang

Yap Koon Roy

Remuneration Committee

Yap Koon Roy (Chairman)Chong Peng Khang

Low Kim Hock

Company Scretaries

Chua Siew Chuan (MAICSA 0777689)Sean Ne Teo (LS 0008058)

Peter Yong Kuen Fook(Independent Non-Executive Chairman)

Low Kim Hock

(Managing Director)

Low Kim Joo(Executive Director)

Low Kim Chung(Executive Director)

Low Yong Seng(Executive Director)

Chong Peng Khang(Independent Non-Executive Director)

Yap Koon Roy

(Independent Non-Executive Director)

Registered Office No. 60-1, Jalan Lagenda 5 Taman 1 Lagenda 75400 Melaka, Malaysia Tel: 06-288 0210 Fax: 06-288 0570

Head Office Lot 197, Jalan Sungai PutatBatu Berendam75350 Melaka, MalaysiaTel: 06-317 2028Fax: 06-317 9324E-mail: [email protected]: www.hockheng.com.my

Registrar

Symphony Share Registrars Sdn. Bhd. (378993-D)Level 6, Symphony HousePusat Dagangan Dana 1Jalan PJU 1A/4647301 Petaling JayaSelangor Darul EhsanTel: 03-7841 8000Fax: 03-7841 8151 / 8152 Auditors Ernst & Young (AF: 0039) Level 16-1, Jaya 99 Tower B 99, Jalan Tun Sri Lanang 75100 Melaka, Malaysia Tel: 06-288 2399 Fax: 06-283 2899 Principal Bankers Public Bank Berhad (6463-H)HSBC Bank Malaysia Berhad (127776-V)CIMB Bank Berhad (13491-P)Maybank Islamic Berhad (787435-M) Stock Exchange Listing Main Market of Bursa Malaysia Securities Berhad Stock Code: 5165 Stock Name: HOKHENG

Board of Directors

Hock Heng Stone Industries Bhd. (840040-H) 3Annual Report 2012

Corporate Structure

Hock Heng Granite Sdn. Bhd. (168782-D)

Hock Heng Marketing (KL) Sdn. Bhd. (610659-T)

PMK Construction & Design Sdn. Bhd. (538315-X)

Hock Heng Realty Sdn. Bhd. (972711-V)

100%100%

100%

100%

100%

80%

100%

60%

Hock Heng Marketing (Southern Region) Sdn. Bhd. (308130-X)

Hock Heng Stone (East Coast) Sdn. Bhd. (701947-T)

Dunia Batu Alam Sdn. Bhd. (487236-X)



Financial year ended 31 December * 2008 * 2009 2010 2011 2012 RM’000 RM’000 RM’000 RM’000 RM’000 Revenue 49,557 34,060 43,022 40,302 34,718 Earnings before interest, tax, depreciation and amortisation 10,533 9,895 6,535 6,463 4,565 Profit before tax 7,576 6,839 3,380 3,120 1,040 Profit attributable to owners of the parent 5,754 5,165 2,410 2,226 729 Shareholders’ equity 35,086 39,854 48,929 50,355 50,284 Earnings per share (Sen)^ 8.90 7.99 3.35 2.78 0.91 Net assets (“NA”) per share (RM)^ 0.54 0.62 0.61 0.63 0.63 * The consolidated statements of comprehensive income have been prepared based on the assumption that the Group had been existence in financial years ended

(“FYEs”) 31 December 2008 & 2009. ^ For FYEs 2008 & 2009 Computed based on the profit attributable to owners of the parent and NA for the respective financial years divided by the issued and paid-up capital of

64,658,000 shares, after acquisition of subsidiaries but before Public Issue by Hock Heng Stone Industries Bhd. ^ For FYE 2010 Computed based on the profit attributable to owners of the parent for FYE 2010 divided by the weighted average number of shares in issue during the financial

year of 71,875,605 shares. NA per share is computed based on NA divided by the issue and paid-up capital of 80,000,000 shares. ^ For FYE 2011 & 2012 Computed based on the profit attributable to owners of the parent and NA for the respective financial years divided by the weighted average number of shares in

issue during the financial year of 80,000,000 shares.

0.63

0.63

0.61

0.54

60000

1,040

3,120

3,380

6,839

7,576

SHAREHOLDERS’ EQUITYRM’000

NET ASSETS PER SHARE(RM)

PROFIT BEFORE TAXRM’000

REVENUERM’000

2008

2009

2010

2011

2012

0 10 20 30 40 50

34,718

49,557

34,060

40,302

43,022

2008

2009

2010

2011

2012

0 10 20 30 40 50 60

35,086

50,284

50,355

39,854

48,929

2008

2009

2010

2011

2012

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

0.62

2008

2009

2010

2011

2012

0 1 2 3 4 5 6 7 8



Mr. Peter Yong Kuen Fook, a Malaysian aged 55, was appointed to the Board of Hock Heng as an Independent Non-Executive Director on 21 October 2009 and subsequently re-designate as Independent Non-Executive Chairman on 1 March 2013. He holds Bachelor’s Degree in Electrical Engineering from City University, England in 1982. He has more than 22 years of experience in project management, having started his career as a project engineer in Pathfinder M&E Sdn. Bhd. in 1983 and thereafter held the position as engineer in various companies mainly in the construction sector.

Mr. Peter Yong does not have any directorship in other public company.

He is a shareholder of the Company and does not have any family relationship with any other Director and/or major shareholder of the Company.

He does not have any conflict of interest with the Company and has not been convicted of any offences within the past 10 years other than traffic offences.

He is the Chairman of the Nomination Committee and a member of the Audit Committee of the Company. He attended all the five (5) Board of Directors’ Meetings held in the financial year ended 31 December 2012.

Mr. Low Kim Hock, a Malaysian aged 56, was appointed to the Board of Hock Heng as Executive Chairman and Managing Director on 28 November 2008 and subsequently re-designate as Managing Director on 1 March 2013. In 1988, Mr. Low founded Hock Heng Granite Sdn. Bhd. (“HHG”), a wholly owned subsidiary company of Hock Heng, which paved way for his involvement in the manufacturing of dimension stones and related products. His extensive experience in the dimension stones industry is as a result of over 32 years of hands-on working experience in the industry. Mr. Low has been instrumental to the success, growth and development of the Group. His involvement in the industry started when he began working in his small family-owned business at the age of 18, which specialised in the manufacturing, polishing and engraving of dimension stones.

Through his years of exposure in the dimension stones industry and his extensive travels to foreign countries in search of dimension stones which he believes will have good market potential, he has gained vast experience, knowledge and skills in the selection of quality marble and granite blocks and the efficient processing of dimension stones which are considered crucial for the success of the Group. His responsibilities include developing the overall business strategies and direction, managing the day-to-day operations and business development of the Group.

Mr. Low is a substantial shareholder of the Company by virtue of his direct interest and indirect interest via his shareholding and directorship in Jasa Maju Jaya Sdn. Bhd., a major shareholder of Hock Heng (“JMJ”).

He is the father of Low Yong Seng and brother of Low Kim Joo, Low Kim Chung and Low Kim Ong. Low Kim Ong is a substantial shareholder of the Company by virtue of his direct interest and indirect interest via his shareholding and directorship in JMJ.


He is a member of the Remuneration Committee of the Company. He attended all the five (5) Board of Directors’ Meetings held in the financial year ended 31 December 2012. He also sits on the Board of several private limited companies.

Low Kim Hock Managing Director

Peter Yong Kuen Fook Independent Non-Executive Chairman


Profile of Directors (Cont’d)

Mr. Low Kim Joo, a Malaysian aged 49, was appointed to the Board of Hock Heng as an Executive Director on 28 November 2008. He has more than 24 years of experience in the dimension stones industry when he began his career in HHG in 1988 as an Executive Director and was responsible for the sales and marketing operations of HHG. He was also appointed as the Executive and Marketing Director in both Hock Heng Marketing (Southern Region) Sdn. Bhd. (“HHMSR”) and Hock Heng Stone (East Coast) Sdn. Bhd. (“HHSEC”), the subsidiary companies of Hock Heng, in 2000 and 2005 respectively. He was instrumental in expanding the Group’s non-project based business in the Southern Region and East Coast of Peninsular Malaysia. He is in-charge of the management and operations of HHMSR and HHSEC which focus on non-project based clientele.

Mr. Low is a substantial shareholder of the Company by virtue of his direct interest and indirect interest via his shareholding and directorship in JMJ.

He is the uncle of Low Yong Seng and the brother of Low Kim Hock, Low Kim Chung and Low Kim Ong.


He attended four (4) out of five (5) Board of Directors’ Meetings held in the financial year ended 31 December 2012. He also sits on the Board of several private limited companies.

Mr. Low Kim Chung, a Malaysian aged 51, was appointed to the Board of Hock Heng as an Executive Director on 28 November 2008. He begins his career in the dimension stones industry when he joined HHG in 1988 as an Executive Director to oversee the production operations. In 2002, he was appointed as the Executive and Marketing Director to oversee the entire operations of PMK Construction & Design Sdn. Bhd. (“PMK”), a wholly owned subsidiary company of Hock Heng, which focuses on the monuments and other dimension stones related products market. Over the span of more than 24 years in the dimension stones industry, he has gained vast experience in the procurement of raw material and the know-how in the manufacturing, engraving and sandblasting of monuments. He is responsible for the sales and marketing operations as well as the procurements of raw materials for PMK.

Mr. Low is a substantial shareholder of the Company by virtue of his direct interest and indirect interest via his shareholding and directorship in JMJ.

He is the uncle of Low Yong Seng and the brother of Low Kim Hock, Low Kim Joo and Low Kim Ong.


He attended all the five (5) Board of Directors’ Meetings held in the financial year ended 31 December 2012. He also sits on the Board of several private limited companies.

Low Kim Joo Executive Director

Low Kim Chung Executive Director


Profile of Directors (Cont’d)

Mr. Low Yong Seng, a Malaysian aged 32, was appointed to the Board of Hock Heng as an Executive Director on 12 April 2010. He holds Bachelor of Accounting degree from University of Herfordshine, United Kingdom in 2002. He begins his career with the Group after graduate as an Account Executive in HHG. He has been promoted to Accounts and Finance Manager in 2005. He is responsible for the accounts, finance and investor relationships of the Group.

Mr. Low is a shareholder of the Company.

He is the son of Low Kim Hock and nephew of Low Kim Joo, Low Kim Chung and Low Kim Ong.


He attended all the five (5) Board of Directors’ Meetings held in the financial year ended 31 December 2012.

Mr. Chong Peng Khang, a Malaysian aged 33, was appointed to the Board of Hock Heng as an Independent Non-Executive Director on 21 October 2009. He holds Bachelor of Accounting degree from Multimedia University, Malaysia in 2002. He began his career as an auditor with Deloittee KassimChan in 2002 and subsequently joined Ernst & Young in 2003. He has been involved in auditing and business advisory services to companies from various industries. He is a Chartered Accountant by profession as well as a Fellow of the Association of Chartered Certified Accountants, United Kingdom (“ACCA”) and a member of the Malaysian Institute of Accountants (“MIA”). He is currently an Audit Manager of a chartered accounting firm.

He is also a Director of Fibon Berhad.

Mr. Chong does not have any shares in the Company and does not have any family relationship with any other Director and/or major shareholder of the Company.


He is the Chairman of the Audit Committee and members of the Remuneration Committee and Nomination Committee of the Company. He attended all the five (5) Board of Directors’ Meetings held in the financial year ended 31 December 2012.

Mr. Yap Koon Roy, a Malaysian aged 50, was appointed to the Board of Hock Heng as an Independent Non-Executive Director on 21 October 2009. He holds Bachelor of Laws degree from University of Malaya in 1986. He was called to the Malaysian Bar in March 1987 and has been in active legal practice since then. He began his practice in Messrs Nordin & Phua, an Advocates & Solicitors and subsequently started his own practice, Messrs Yap Koon Roy & Associates in 1997. He has approximately 24 years of experience in the legal services industry and serves as a Committee Member of the Strata Title Board of the Melaka State Government.

Mr. Yap does not have any directorship in other public company.

He is a shareholder of the Company and does not have any family relationship with any other Director and/or major shareholder of the Company.


He is the Chairman of the Remuneration Committee and members of the Audit Committee and Nomination Committee of the Company. He attended all the five (5) Board of Directors’ Meetings held in the financial year ended 31 December 2012. He also sits on the Board of a private limited company.

Low Yong Seng Executive Director

Chong Peng KhangIndependent Non-Executive Director

Yap Koon Roy Independent Non-Executive Director



Dear Shareholders,On behalf of the Board of Directors (“the Board”), I am pleased to present to you

our Annual Report together with the Audited Financial Statements of Hock

Heng Stone Industries Bhd. (“Hock Heng” or “the Company”) for the financial year

ended 31 December 2012.

Financial Highlights During the financial year ended 31 December 2012, the Group achieved revenue of RM34.72 million, a decrease of RM5.58 million as compared to RM40.30 million in the previous financial year. The decrease in revenue was mainly due to decrease in construction segment revenue by approximately RM7.45 million but was however partly offset by higher sales of goods segment of approximately RM1.85 million during the financial year.

The Group’s profit before tax of RM1.04 million for the financial year under review was lower in comparison with the preceding financial year’s profit before tax of RM3.12 million. This was mainly caused by the lower operating profit generated of RM2.04 million resulted from lower revenue during the financial year as mentioned in above.

The Group continues to maintain a set of healthy financial position with shareholders’ equity of RM50.28 million and net assets of RM0.63 per ordinary share as at 31 December 2012.

Industry Trends and Development In year 2012, global economic growth moderated amid a more challenging environment comparison with year 2011.The growth was uneven with the United States (US) experiencing a fragile recovery and the Euro area remaining in recession. Weaker global growth prospects, coupled with the ongoing fiscal uncertainties in the advanced economies also contributed to sustained volatility in the international financial markets. Nonetheless, market sentiments improved towards the latter part of the year following stronger commitments and important steps taken in resolving the Euro sovereign debt crisis.

The Malaysian economy recording a strong growth of 5.6% (2011: 5.1%).* The overall growth performance was supported by resilient domestic demand, which outweighted the negative impact from the weak external environment. Despite the uncertainties of the external environment, domestic consumer confidence picked up amidst positive income growth, continued strength in the labour market and supportive financing conditions.


Chairman’s Statement (cont’d)

Prospects

The Malaysian economy is expected to remain on a steady growth of 5% to 6% in year 2013. Economic activity will be anchored by the continued resilience of domestic demand, and supported by a gradual improvement in the external sector. Domestic demand, which recorded the highest rate of expansion over the recent decade in year 2012, is expected to remain the key driver of growth in year 2013. Growth in private and public investment is expected to remain strong. Private investment is still expected to record growth rate of 15.6% (2012: 22%), driven by the continued capacity expansion of the domestic-oriented firms, ongoing implementation of projects and a gradual improvement in external demand. However, public investment is expected to moderate at 7.5% (2012: 17.1%) in year 2013 given the ongoing consolidation of the government’s fiscal position and as the role of the private sector gains greater significance. The construction sector is envisaged to expand strongly at 15.9% (2012: 18.5%), supported by the implementation of major infrastructure projects and with all the sub-sectors registering steady growth.*

With the favourable outlook of construction sector in year 2013, the Group will continue to focus on maximizing efficiency and undertake strategies to ensure the long-term strength of the businesses and operations. In addition, through diversification into property development business, it is expected to contribute positively to the Group’s earnings and improve the financial position in long term.

The Company has announced to Bursa Malaysia Securities Berhad that Hock Heng Group intends to venture into property development business for commercial and residential property development projects to diversify its earning base and to enhance the Group’s overall long term growth prospects. The Group anticipate that the contribution of the property development business will be another source of revenue stream and may contribute to stable earning growth for the Group in the future. The expansion of the Group’s business into the property development is part of the Group’s long term strategy of diversifying into other industries with strong growth prospects.

Barring any unforeseen circumstances, the Board is confident that the Group will continue to improve its shareholders value and garner an even stronger performance in the financial year ending 31 December 2013.

Corporate Governance The Board acknowledges the Malaysian Code on Corporate Governance issued by the Finance Committee on Corporate Governance which set out the principles, best practices and guidelines that may be applied in the operations of a company, so as to enhance the transparency and accountability of public listed companies in Malaysia. These high standards have indeed enabled the Group to function and perform in the best interests of shareholders of the Company. The Board will ensure that the requirements of Bursa Malaysia Securities Berhad are applied and adhered to by the Company.


Corporate Social Responsibility The Board places great importance on the welfare of its employees and maintaining awareness on safety and environmental aspects by promoting safe work practices to all employees. In addition, we also place high commitment in the healthcare, training and development for our employees. For example, job training is conducted for new recruit employees, specific process training and skills enhancement training are provided for the existing employees to ensure that they are well equipped with the necessary skills on their job.

The Group recognises its role and responsibility as a caring corporate citizen within the community. In year 2012, we have operated and provided assistance and contributions in the form of cash of kind to deserving organisations, schools and temples. Dividend

As the Group is strengthening its businesses for its long-term sustainability via diversifying into property development business, the Board, after careful consideration, has not recommended any dividend payment for the financial year ended 31 December 2012.

Appreciation

On behalf of the Board, I would like to extend my sincere appreciation to you, our valued customers, vendors, business associates, bankers and regulatory authorities for your continuing support and confidence in the Group.

I would also like to express my sincere appreciation to the management and staff throughout the Group, for their commitment and dedication in carrying out their duties and responsibilies diligently.

Finally, I wish to thank my fellow Directors for their counsel, contribution and support throughout the year. I am confident that with their wisdom and experience will benefit and bring the Group towards excellence.

Thank you.

PETER YONG KUEN FOOK Independent Non-Executive Chairman

Source:* Bank Negara Malaysia Annual Report 2012

Chairman’s Statement (cont’d)


Corporate Governance Statement

The Board of Hock Heng recognises the need to maintain high standards of corporate governance to enhance shareholders’ value with corporate accountability and transparency. Thus, the Board is commited to ensure that the corporate governance is in line with the principles and recommendations of the Malaysian Code on Corporate Governance 2012 (“MCCG 2012”). THE BOARD OF DIRECTORS Roles and Responsibilities of the Board The Board plays a pivotal role in the stewardship of the Group’s direction and operations, including enhancing long-term shareholders’ value. In order to fulfil this role, the Board is responsible for the overall corporate governance, include the Group strategy and direction, acquisition and divestment policy, approval of major capital expenditure, consideration of significant financial matters and monitoring the financial and operating performance of the Group. In manifestation of its commitment to MCCG 2012, the Board has established a Board Charter to ensure that all Board members are aware of their fiduciary duties and responsibilities for the proper stewardship of the Group to provide reasonable assurance for the success of the Group on sustainable manner. The Board is tasked with realisation of long term and sustainable shareholders’ value and safeguarding the interests of stakeholders. The major responsibilities of the Board as outlined in the Board Charter include amongst others, the following: (a) to review and approve the strategic business plans for the Group and monitoring of the implementation by the Management; (b) to oversee the conduct and the performance of the Group businesses; (c) to review and manage principal risks affecting the Group; (d) to review and ensure senior management is of sufficient calibre and succession planning for senior management is put in

place; (e) to review the adequacy and integrity of the Group internal control systems and management information system; (f) to approve the policies relating to corporate branding, public relations, investor relations and shareholder communication

programmes; (g) to ensure compliance with applicable laws and regulations relevant to the Group’s operations; (h) to ensure compliance and to carry out the duties of the Board in accordance with the relevant provisions of all applicable

laws, regulations and guidelines; (i) to set corporate values and vision as well as clear lines of responsibility and accountability; (j) to approve the major changes to the corporate organisation structure and delegation of authority to the Management; (k) to establish and maintain the ethical standards through a code of conduct which will be applicable throughout the Group

and ensure the compliance of this code of conduct; (l) to approve the appointment of Directors and senior executives and to review and recommend the removal of the Directors; (m) to put in place procedures to assess any related party transactions or conflict of interest situation within the Group; (n) to establish relevant board committees in order to carry out specific board responsibilities effectively while the Board

assumes the ultimate responsibility for such board responsibilities. Such board committees are governed by terms of reference approved by the Board and the conduct of such board committees are monitored by the Board by receiving minutes and/or reports from such board committees;


Corporate Governance Statement (Cont’d)

THE BOARD OF DIRECTORS (continued) Roles and Responsibilities of the Board (continued) (o) to ensure adequate trainings are provided to the members of the Board; (p) to conduct a Board and Board Committee evaluation through the Nomination Committee comprising of Board Assessment

and an Individual Assessment; and (q) to establish formal and transparent remuneration policies and procedures to attract and retain directors through Remuneration

Committee. To ensure the effectiveness to discharge of its function and responsibilities, the Board has delegated specific authority of the Board to the relevant Board Committees, Managing Director and Management via Authority Limits Schedule. The Authority Limits Schedule clearly set out relevant matters reserved for the Board’s approval, as well as those which the Board delegate to Board Committees, Managing Director and Management for approval. The Authority Limits Schedule will be reviewed and amended when required to ensure efficient and effective decision making in the Group. Code of Conduct The Code of Conduct (‘the Code”) is applied to employee, customers and vendors. It establishes standard to ensure that working environment and condition are safe and healthy, workers are treated with respect and dignity, and business operation are conducted ethically. The fundamental in adopting the Code is to ensure that all business activities are in full compliance with the laws, rules and regulations. If a law of the country conflicts with a rule or policy set out in this code, affected personnel should comply with the law. Besides, the Code encourages affected personnel to go beyond legal compliance and adopt international recognized standard in order to advance business ethics and control. The Group is open to receive input from stakeholders in the continue development and implementation of the Code adopt the best practice where possible. Strategies Promote Sustainability The Board promotes highest standards of integrity, transparency and accountability in the Group’s business and operations to ensure business sustainability. For employees, the Board will strive to recruit and retain the most competence people, offer them competitive terms and conditions of service, and maximize their personal progression through training and development. Hock Heng Group is committed to provide to all employees a safe, secure, healthy and conducive workplace culture and environment, where the values and mutual and reciprocal respect, trust and confidence and upheld and activities promoted. For government, the Board undertakes to comply with all applicable laws and regulations laid down and to participate in project promulgated by government for industry and social development . The Board pledges that the Group will be a responsible corporate citizen wherever it operates and will take into consideration the needs and aspiration of local communities. Board Balance and Composition The Board currently comprises seven (7) members of which four (4) are Executive Directors including Managing Director and three (3) are Independent Non-Executive Directors including Chairman. With the Board’s composition, Hock Heng fully complies with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Listing Requirements”) with regard to the constitution of the Board of Directors and the required ratio of Independent Directors. The profile of Directors are presented on pages 5 to 7 of this Annual Report.



THE BOARD OF DIRECTORS (continued)

Board Balance and Composition (continued)

The Board consists of qualified individuals of different range of skills, experiences and backgrounds and the size of the Board is such that it facilitates the making of informed and critical decisions for the Group. The Executive Directors have direct responsibilities on the day-to-day business operations and frequently attend management meetings wherein operational details and other issues were discussed and considered. The presence of Independent Non-Executive Directors provide guidance, independent views, advice and judgement in ensuring that the strategies proposed are discussed and examined. This provides a balance in the Board to safeguard the interest of minority shareholders and to ensure that high standards of conduct and integrity are maintained by the Group. One of the recommendations of the MCCG 2012 states that the positions of Chairman and Chief Executive Officer should be held by different individuals, and the Chairman must be a non-executive member of the Board. On 1 March 2013, Mr. Peter Yong Kuen Fook (who was previously the Independent Non-Executive Director) was re-designated as Independent Non-Executive Chairman of the Company and on the same date, Mr. Low Kim Hock (who was previously the Chairman cum Managing Director) was re-designated as Managing Director (“MD”) of the Company. The Board has established the roles and responsibilities of Chairman which is distinct and separate from the roles and responsibilities of MD. The segregation between the duties and responsibilities of Chairman and MD ensures an appropriate balance of roles, responsibilities and accountability at Board level. The Board, however noted that one of the recommendations of the MCCG 2012 is that the tenure of an Independent Director should not exceed a cumulative term of nine (9) years. Amongst the Board members, all the tenure of three (3) Independent Non-Executive Directors have not exceeded cumulative term of nine (9) years. In order to enhance business and corporate efficiency and effectiveness, the Board has delegates certain responsibilities to the committees namely Audit Committee, Nomination Committee and Remuneration Committee. All committees have written terms of reference. The Chairman of the respective committees will brief the Board on the matters discussed at the committee meetings and minutes are circulated to the Board. Annual Assessement of Independent In determining the independence of Independent Directors, the Board will consider all relevant information, facts and circumstances in respect of such Independent Directors. When assessing independence, the Board should focus beyond the Independent Director’s background, economic and family relationships and consider whether the Independent Director can continue to bring independent and objective judgment to Board deliberations. Based on the annual assessment of Independent Directors of Company, the Board is satisfied with the level of independence demonstrated by the Independent Directors and their ability to act in the best interest of the Company. Appointment to the Board and Re-election In accordance to the Company’s Articles of Association, Directors appointed during the year is required to retire and seek election by shareholders at the following AGM immediately after their appoinment. The Company’s Articles of Association provides that one-third (1/3) of the Directors for the time being, or the number is not three (3) or multiple of three (3), then the number nearest to one-third (1/3) shall retire from office at each AGM and at least once every three (3) years. The Directors retiring from office shall be eligible for re-election by the shareholders. The Directors standing for re-election at the forthcoming AGM are Mr. Peter Yong Kuen Fook and Mr. Yap Koon Roy. Supply of Information The Board has independent access to the advice and support services of the Company Secretaries for effective Board’s function. The Board may directly interact with the Senior Management or request further information or explanation on the Group’s operations. Besides, the Board may seek advice from independent professional at the Company’s expense to enable the Board to discharge its duties in relation to matters being deliberated. All Directors received notice of meetings with pre-set agendas together with board papers before the meetings and within sufficient time to enable the Directors to obtain further explanations, where applicable, in order for them to be well informed before the day of holding the meetings.



THE BOARD OF DIRECTORS (continued) Company Secretaries The Company Secretaries are responsible for ensuring the Board procedures are followed, that the applicable rules and regulations for the conduct of the affairs of the Board are complied with and for all matters associated with the maintenance of the Board or otherwise required for its efficient operation. The Company Secretaries advise the Board on issues relating to corporate governance, compliance with laws, rules, procedures and regulatory requirements. The Company Secretaries attend and ensure that all Board meetings are properly convened, and that accurate and proper records of the proceedings and resolutions passed are taken and maintained in the statutory register of the Company. The Board ensures that the Company Secretaries appointed have the relevant experiences and skills. Directors’ remuneration In consideration of the recommendation from Remuneration Committee, the Board is responsible to determine the level of remuneration of the Directors of the Group in such a manner to promote and support long term vision and strategies of the Group. Such remuneration structure shall attract and retain key personnel of requisite quality for long term value creation as well as motivating and incentivising directors and senior executives to perform their best for the Group. Remuneration package of Executive Directors shall not include an element of commission or percentage of turnover. Non-Executive Directors will be paid based on fixed fees commensurate with their responsibilities in the Board and Board Committees and their attendance at the meetings, subject to approval from shareholders. The determination of the remuneration package of Non-Executive Directors should be a matter for the full Board, with individual director concerned should abstain from discussion of their own remuneration. Remuneration package of Non-Executive Directors shall not include an element of commission or percentage of turnover or profits. The details of the Directors’ remuneration during the current financial year are as follows: 1) Aggregate remuneration of Directors categorised into appropriate components as follows: Salaries and other Benefits- emoluments Allowances Fees in-kind Total RM’000 RM’000 RM’000 RM’000 RM’000 Executive Directors 640 - 331 33 1,004 Non-Executive Directors - 7 72 - 79 2) Directors’ remuneration are broadly categorised into the following bands: Number of Directors Range of remuneration Executive Non-Executive Below RM50,000 - 3 RM50,001 to RM100,000 - - RM100,001 to RM150,000 - - RM150,001 to RM200,000 1 - RM200,001 to RM250,000 1 - RM250,001 to RM300,000 1 - RM300,001 to RM350,000 1 - Details of the remuneration of individual Directors are not disclosed as the Board has considered that the above Directors’

Remuneration disclosures satisfies the accountability and transparency aspects of the Code.




Board Meetings The Board is satisfied with the time commitment given by respective Directors in fulfill their roles and responsibilities. The Board meets quarterly to review its quarterly performances and discuss new strategies. Additional meetings will be called when necessary. During the financial year ended 31 December 2012, five (5) Board meetings have been held and the attendance of each of the Directors are as follows: Number of Name of Directors Meetings Attended

Low Kim Hock 5/5 Low Kim Joo 4/5 Low Kim Chung 5/5 Low Yong Seng 5/5 Chong Peng Khang 5/5 Yap Koon Roy 5/5 Peter Yong Kuen Fook 5/5 All the above meetings were held in the Company’s Conference Room at Lot 197, Jalan Sungai Putat, Batu Berendam, 75350 Melaka, Malaysia. Directors’ Training The Board recognises the importance of continuous education of its members in order for its members to discharge their responsibilities and duties effectively. The Board shall, through Nomination Committee, continuously assess and determine the training needs of its individual members and ensure that the members of the Board received relevant updates and training to update individual directors’ knowledge and enhance their skills to effectively discharge their duties and responsibilities and to participate actively in the Board deliberations. The Directors are briefed by the Company Secretaries on letters and circulars issued by the Bursa Malaysia Securities Berhad at Board meeting. Some of the trainings/courses attended by the Directors during the financial year ended 31 December 2012 are as follows:

Directors Talks/Seminars/Workshops Conferences Date

Mr. Low Kim Hock 2013 Budget & Tax Planning Seminar 4.10.2012 - organised by: Crowe Horwath & RHB Bank Berhad

Mr. Low Kim Joo 2013 Budget Seminar 10.10.2012 - organised by: Ernst & Young Tax Consultant Sdn. Bhd.

Mr. Low Kim Chung 2013 Budget Seminar 10.10.2012 - organised by: Ernst & Young Tax Consultant Sdn. Bhd.

Mr. Low Yong Seng Updates of the 2012 IFRS-Compliant MFRSs - Preparing for 19.3.2012 - Convergence to IFRSs 20.3.2012 - organised by: The Malaysian Institute of Certified Public Accountant Seminar on Preparing your first MFRS quarterly report 9.4.2012 - organised by: Ernst & Young Bursa Malaysia’s Half Day Governance Programme 3.10.2012 - organised by: Bursa Malaysia Berhad 2012 National Tax Seminar 9.10.2012 - organised by: Inland Revenue Board of Malaysia




Directors’ Training (continued)

Directors Talks/Seminars/Workshops Conferences Date

Mr. Chong Peng Khang Updates of the 2012 IFRS-Compliant MFRSs - Preparing for 19.3.2012 - Convergence to IFRSs 20.3.2012 - organised by: The Malaysian Institute of Certified Public Accountant Bursa Malaysia’s Half Day Governance Programme 3.10.2012 - organised by: Bursa Malaysia Berhad 2013 Budget Seminar 10.10.2012 - organised by: Ernst & Young Tax Consultant Sdn. Bhd.

Mr. Yap Koon Roy Seminar on Interest Scheme: The Next Generation Wealth Generator 9.5.2012 - organised by: Companies Commission of Malaysia

Mr. Peter Yong Kuen Fook Bursa Malaysia’s Half Day Governance Programme 3.10.2012 - organised by: Bursa Malaysia Berhad 2013 Budget & Tax Planning Seminar 4.10.2012 - organised by: Crowe Horwath & RHB Bank Berhad

Board Committees Apart from the Audit Committee, there are two (2) other committees, the Nomination and Remuneration Committees, established by the Board to assist the Board in executing their responsibilities. Audit Committee The report of the Audit Committee is set out in pages 23 to 26 of this Annual Report. Nomination Committee The Nomination Committee was set up on 4 February 2010 and comprises three (3) Independent Non-Executive Directors. The members of the Nomination Committee are: Peter Yong Kuen Fook - Chairman Chong Peng Khang - Member Yap Koon Roy - Member The term of office of the Nomination Committee shall be for a period of three (3) years and may be re-nominated and appointed by the Board from time to time. Terms of reference of the Committee are being clearly defined. The Nomination Committee met at least twice during the financial year under review. The duties and responsibilities of the Nomination Committee are as follows:- (a) to recommend to the Board of Directors, candidates for all directorships to be filled by the Shareholders or the Board of

Directors. In making its recommendations, the Nomination Committee would consider the candidates’ :- - skills, knowledge, expertise and experience; - professionalism; - integrity; and

- in the case of the candidates for the position of Independent Non-Executive Directors, the Nomination Committee would evaluate the candidates’ ability to discharge such responsibilities/functions as expected from independent non-executive Directors;



THE BOARD OF DIRECTORS (continued) Nomination Committee (continued)

(b) to consider, in making its recommendations, candidates for directorships proposed by the Chief Executive Officer and, within the bounds of practicability, by any other senior executive or any Director or Shareholder;

(d) to recommend to the Board of Directors the nominees to fill the seats on Board Committees; (e) to assess the effectiveness of the Board of Directors as a whole and each individual Director/committee of the Board,

including Independent non-executive directors, as well as the Chief Executive Officer annually. All assessments and evaluations carried out by the Nomination Committee in the discharge of all its functions to be properly documented; and

(f) to consider and examine such other matters as the Nomination Committee considers appropriate.

The Nomination Committee met once during the financial year under review.

Remuneration Committee The Remuneration Committee was set up on 4 February 2010 and comprised two (2) Independent Non-Executive Directors and one (1) Executive Director as follows: Yap Koon Roy - Chairman Low Kim Hock - Member Chong Peng Khang - Member The term of office of the Remuneration Committee shall be for a period of three (3) years and may be re-nominated and appointed by the Board from time to time. Terms of reference of the Committee are being clearly defined. The Remuneration Committee met at least once during the financial year under review. The Remuneration Committee is responsible for reviewing annually and recommending to the Board, the remuneration policy and packages of the Executive Directors. In making its recommendation, the Remuneration Committee adheres to the principle of remunerating based on the Group’s performance as well as individual performance. The Remuneration Committee does not possess the authority to make decisions on behalf of the Board. Its role is merely that of making recommendations for the Board’s approval. The policy practiced on Directors’ remuneration by the Remuneration Committee is to provide the remuneration packages that must be sufficient to attract, retain and motivate Directors of the quality required to manage the business of the Group and to align the interest of the Directors which those of the shareholders.

The Remuneration Committee met once during the financial year under review. UPHOLD INTEGRITY IN FINANCIAL REPORTING Compliance with Applicable Financial Reporting Standards The Board is responsible for ensuring the proper maintenance of the accounting records of the Company. The Company’s financial reporting in the form of quarterly and annual financial statements present a balanced and understandable assessment of the Company’s position and prospects. In discharging the Board’s responsibility to ensure quality financial reporting to its shareholders, investors and regulatory authorities, the Audit Committee assists the Board in scrutinising information for disclosure to ensure compliance with accounting standard, accuracy, adequacy and completeness. The Responsibility Statement by the Directors pursuant to the Bursa Malaysia Securities Berhad Main Market Listing Requirements is set out in page 27 of this Annual Report.



UPHOLD INTEGRITY IN FINANCIAL REPORTING (continued) Relationship with External Auditors The Audit Committee and the Board have established formal and transparent arrangements to maintain an appropriate relationship with the External Auditors as stated in the Audit Committee Report in pages 23 to 26 of this Annual Report. RECOGNISE AND MANAGE RISKS Sound Framework to Manage Risks Enterprise Risk Management Framework was established by the Group to identify, assess and manage the Group’s key business risks in a structured manner. The Group continues to maintain and review its internal control system to ensure the safeguard of its assets and shareholders’ investments.

ENSURE TIMELY AND HIGH QUALITY DISCLOSURE Corporate Disclosure Policy The Company has in place a policy stipulates the basic principles and procedures of corporate disclosure in order to communicate and disseminate material information impartially to stakeholders on timely, accurate, clear and complete manner, in accordance with Main Market Listing Requirements and other applicable laws and regulations. The policy forms a part of the Company internal rules and regulations and applies to all Directors, officers and employees of the Group and at the same time clearly expresses its commitment on transparent, quality and timely disclosure of Material Information to all stakeholders. Leverage on Information Technology for Effective Dissemination of Information The Company maintains website at http://www.hockheng.com.my which provides all relevant information on Hock Heng Group and is accessible by the public. This website enhances the Investor Relations function by including all announcements made to Bursa Malaysia, annual reports as well as the corporate and governance structure of Hock Heng. The announcement of the quarterly results is also made immediately after the Board’s approval. This is important to ensure fair access to information by the investing public. STRENGTHEN RELATIONSHIP BETWEEN COMPANY AND SHAREHOLDERS Encourage Shareholders’ Participation at General Meetings Hock Heng dispatches the Notice of AGM to shareholders 21 days from the date of AGM which is required by the Companies Act, 1965 and the Main Market Listing Requirements. The time frame given to shareholders allows them to make arrangements to attend and participate either in person, by corporate representative or by proxy. To further promote participation of shareholders through proxy(ies), which is in line with the insertion of Paragraph 7.21A(2) of the Main Market Listing Requirements, the Company has amended its Articles of Association to include explicitly the right of proxies to speak at general meetings commencing with the 3rd AGM held on 28 June 2012. Besides, Hock Heng removed the limit on the number of proxies to be appointed by an exempt authorised nominee with shares in the Company for multiple beneficial owners in one securities account to allow greater participation of beneficial owners of shares at general meetings.



STRENGTHEN RELATIONSHIP BETWEEN COMPANY AND SHAREHOLDERS (continued)

Encourage Poll Voting The Board is encourage to put substantive resolutions to vote by poll and make an announcement of the results showing the number of votes cast for and against for each resolution. At the 3rd AGM of the Company, no substantive resolutions were put forth shareholders’ approval except for resolutions for the adoption of Audited Financial Statements for the financial year ended 31 December 2011, payment of final dividend, re-election of retiring Directors, payment of Directors’ fees and re-appointment of external auditors. As such, the resolutions put forth shareholders’ approval at the 3rd AGM were voted by show of hands. Effective Communication and Proactive Engagement with Shareholders The Company recognises the importance of communication and timely dissemination of information concerning the Group’s business activities to shareholders and the investing public. Announcements on various disclosures, timely release of quarterly financial results, annual reports and any corporate announcements made has provided the shareholders and investing public with an overview of the Group’s performance and operations. The Company also values dialogue with shareholders as a means of effective communication that enables the Board to convey information about the Group’s performance, corporate strategy and other matters affecting shareholders’ interests. The AGM is the principle forum for dialogue with shareholders. The Board provides opportunities for shareholders to raise questions at the AGM pertaining to issue in the Annual Report, Audited Financial Statements, corporate developments of the Group and other matters that affect shareholders’ interests. The Directors and the external auditors are available to respond to questions from the shareholders during this meeting. A full explanatory statement of the effects of the proposed resolutions will accompany each item of special business as mentioned in the Notice of meeting.

OTHER COMPLIANCE INFORMATION 1. Utilisation of Proceeds The Company did not raise funds through any corporate proposal during the financial year. 2. Share Buy-back During the financial year, there were no share buy-back by the Company. 3. Options, Warrants or Convertible Securities There were no issuance of options, warrants or convertible securities during the financial year. 4. Depository Receipt Programme During the financial year, the Company did not sponsor any depository receipt programme. 5. Imposition of Sanctions and/or Penalties There were no sanctions or penalties imposed on the Company and its subsidiary companies, Directors or management by

the relevant regulatory bodies during the financial year.


OTHER COMPLIANCE INFORMATION (continued) 6. Non-Audit Fees The amount of non-audit fees charged for services rendered to the Group and to the Company by the external auditors and

its affiliated firms for the financial year amounted to RM22,300 and RM5,900 respectively. 7. Variations in Results There were no variance of 10% or more between the audited results of the financial year ended 31 December 2012 and

the unaudited results previously announced. The Company did not issue any profit estimate, forecast or projection for the financial year.

8. Profit Guarantee During the financial year, there were no profit guarantees given by the Company. 9. Material Contracts Other than the recurrent related party transactions as disclosed below, there were no material contracts entered by the

Company and/or its subsidiary companies which involve Directors’ and major shareholders’ interests for the financial year ended 31 December 2012.

10. Recurrent Related Party Transactions (“RRPT”) The RRPT entered into by the Group during the financial year ended 31 December 2012 were as follows: Aggregate value of Name of transactions Related Parties Nature of RRPT Relationship RM’000 EMP Design Sdn. Bhd. Sales of dimension stone Note # below 2,553 (“EMP”) products from PMK Construction & Design Sdn. Bhd. to EMP LBS Realty Sdn. Bhd. Rental of premises paid from Note # below 84 (“LBS”) Hock Heng Granite Sdn. Bhd. to LBS

Total 2,637

Note # - LowKimHock,LowKimJooandLowKimChung,theDirectorsandsubstantialshareholdersoftheCompanyarealsoDirectorsand

substantialshareholdersofLBS.LBSowns70%equityinterestinEMP.LBSistheholdingcompanyofEMP.

- LowKimOng,asubstantialshareholderoftheCompanyisalsoaDirectorandsubstantialshareholderofLBS. The Company is seeking its shareholders’ approval on RRPT of a revenue or trading nature to be entered by the Company’s

subsidiary companies with related parties in the ordinary course of business in the forthcoming AGM. Details of the transactions are furnished in the Circular, which is distributed together with the Annual Report.




Introduction Pursuant to Paragraph 15.26(b) and Practice Note 9 of Main Market Listing Requirements in relation to requirement to prepare statement about the state of internal control of the listed issuer as a group, and as guided by the Statement on Risk Management and Internal Control: Guidelines for Directors of Listed Issuers (“the Guidelines”), the Board of Directors (“the Board”) is pleased to present the statement on the state of the system of internal control of the Group for the financial year ended 31 December 2012.

Board Responsibilities The Board acknowledges its responsibility for maintaining a sound and effective risk management and internal control system in the Group’s pursuit to achieve its strategic objectives, to promote operational effectiveness and efficiency, to strive for the reliability of internal and external reporting, to comply with applicable laws and regulations and to safeguard shareholders’ investment and the Group’s assets. There is an on-going process by the Board to ensure the adequacy and integrity of such system through monitoring reviews performed on such system. However, in view of the inherent limitations in any system, such system is designed to manage, rather than eliminate risk of failure. The system can therefore only provide reasonable and not absolute assurance against material misstatements of financial information and records or against financial frauds or losses. Risk Management The Board recognises that risk management is an integral part of the Group’s business operations. Enterprise Risk Management Framework established by the Group provides basic structure and mechanism to identify, assess and manage the Group’s key risks in a formal and structured manner. These key risks identified were prioritised in terms of the likelihood of their occurrence and potential impact to the Group’s operation should such key risks materializes in order to identify feasible risk responses to manage these risks in line with the risk appetite of the Group in order to achieve its strategic vision, taking into consideration existing internal control process to mitigate and control these risks. The Group has in place an on-going process to identify, evaluate, manage and monitor key risks faced by the Group during the financial year under review and up to the date of approval for inclusion in the Annual Report. These processes are embedded as part of the Group’s operating and business management processes and form the functional responsibility of all Executive Directors and Senior Management. Executive Directors and Senior Management manage key business risks faced by the Group through constant communication among themselves and changes in the key business risks faced by the Group or emergence of new key business risks are highlighted to the Board, if any. This process is regularly reviewed by the Board during the meeting of the Board for the financial year under review.

Internal Audit Function The Group’s internal audit function was outsourced to an independent professional firm who report directly to the Audit Committee. The outsource internal auditors perform reviews of the internal control procedures established for the business units in accordance to internal audit plan approved by Audit Committee to assess the adequacy and integrity of the internal control systems. The internal audit adopts a risk-based approach in developing its internal audit plan which prioritize internal audit visit in accordance with the key risk profile of the Group. This internal audit plan is reviewed and approved by the Audit Committee before its execution. The internal audit reports which included the findings, recommendations and management responses were presented to the Audit Committee members for their review and tabled in the Audit Committee meetings. The internal auditors will follow up with the management to determine the extent of management action plans arising from the management response that have been implemented in the subsequent internal audit visit.

Internal Control System The Board put in place within the Group with an adequate and conducive control environment for it to accomplish its business objectives. The Group’s internal control system encompasses the Board and its Board Committees with specific terms of reference, Senior Management that is accountable for its decisions and also monitoring and review procedures that are embedded in the Group’s processes. The Board reviews these control processes regularly to ensure that an efficient and effective system of internal control is maintained within the Group.


Statement on Risk Management and Internal Control (Cont’d)

Internal Control System (continued) The key elements of the Group’s internal control systems include: - The Group has a well-defined organisational structure that is aligned to its business and operation requirements. Clearly

defined lines of accountability, delegation of responsibility and level of authorisation for all key aspects of the business have been laid down and communicated throughout the Group.

- Authority charts are established within the Group to provide a functional framework of authority for key operating processes. - The Group’s performance is monitored through management and operational meeting attended by Executive Directors and

Senior Management. Executive Directors adopt a hand-on approach and assisted by Senior Management in managing the Group’s business operations.

- A comprehensive “Employee Manual” is developed to promote on-going and harmonious working relationship among

the employees and set out the rules and regulations to be adhered by employees in performing their duties. The manual is reviewed regularly to include the changes which will enhance the working efficiency and effectiveness.

- Internal audits are conducted periodically by the outsourced internal auditors to review the adequacy and effectiveness of

control activities and monitor compliance with internal controls procedures based on internal audit plan approved by Audit Committee, whilst the annual statutory audit of the financial statements are conducted by external auditors and the external auditors report their findings to the Audit Committee through management letters or discussed at Audit Committee meetings.

- Internal quality audit are conducted by assessors of the ISO certification body as specified by ISO 9001: 2008 - Quality

Management System on the business operation to ensure that internal procedures and standard operating procedures had been properly implemented and documented.

Assurance provided by the Managing Director During the Board of Directors’ meeting during the financial year, the performance of the Group were reviewed and deliberated by the Board, including, but not limited to, the adequacy and effectiveness of risk management and internal control system of the Group put in place to address the potential business risks identified by the Board. Through the reviews by the Board with Managing Director and Senior Management, the Board is of the view that the risk management and internal control system are satisfactory and have not resulted in any material losses, contigencies and uncertainties to the Group which require disclosure in the Annual Report. In response to the Paragraph 42 of the Guidelines, the Board undertakes to seek assurance from Executive Directors on the adequacy and effectiveness of risk management and internal control system of the Group, in all material aspects, on annual basis for the financial year ending 31 December 2013.

Conclusion The Board is dedicated towards maintaining a sound and effective risk management and internal control system and believes that an effective risk management and internal control system duly complied able to provide reasonable assurance towards the achievement of the Group’s strategic vision. The Group continues to take measures to strengthen its risk management capability and the internal control environment. This statement is made in accordance with a resolution of the Board of Directors.


Audit Committee Report

MEMBERSHIP Composition of the Audit Committee and details of attendance at the Audit Committee Meeting during the financial year ended 31 December 2012, where a total of five (5) meetings were held, are as follows: Number of Meeting Attended Chong Peng Khang (Chairman / Independent Non-Executive Director) 5/5 Yap Koon Roy (Member / Independent Non-Executive Director) 5/5 Peter Yong Kuen Fook (Member / Independent Non-Executive Chairman) 5/5 TERMS OF REFERENCE Composition of members The Board shall appoint the Audit Committee from amongst themselves, comprising no fewer than three (3) Non-Executive Directors. The majority of the Audit Committee members shall be Independent Directors. In this respect, the Board adopts the definition of “Independent Director” as defined under the Listing Requirements. Mr. Chong meets the requirements of paragraph 15.09 (c) (i) where he is a Chartered Accountant and a member of the Malaysian Institute of Accountant. No alternate director of the Board shall be appointed as a member of the Audit Committee. The terms of office and performance of the Audit Committee and each of its members shall be reviewed by the Board at least once every three (3) years to determine whether such Audit Committee and members have carried out their duties in accordance with their terms of reference. Meetings The Audit Committee shall meet regularly, with due notice of issues to be discussed, and shall record its conclusions in discharging its duties and responsibilities. In addition, the Chairman may call for additional meetings at any time at the Chairman’s discretion. Upon the request of the external auditors, the Chairman of the Audit Committee shall convene a meeting of the Audit Committee to consider any matter the external auditors believe should be brought to the attention of the directors or shareholders. Notice of Audit Committee meetings shall be given to all the Audit Committee members unless the Audit Committee waives such requirement. The Chairman of the Audit Committee shall engage on a continuos basis with Senior Management, such as the Managing Director, the Finance Director, the internal auditors and the external auditors in order to be kept informed of matters affecting the Company. The Managing Director, Finance Director, the representatives of the internal and the external auditors should normally attend Audit Committee meetings. Other Board members and employees may attend meetings upon the invitation of the Audit Committee. The Audit Committee shall be able to convene meetings with the external auditors, the internal auditors or both, without executive Board members or employees present whenever deemed necessary and at least twice a year with the external auditors. Objectives The principal objectives of the Audit Committee are to assist the Board in discharging its statutory duties and responsibilities relating to accounting and reporting practices of the Company and each of its subsidiary companies. In addition, the Audit Committee shall: (a) evaluate the quality of the audits performed by the internal and external auditors; (b) provide assurance that the financial information presented by management is relevant, reliable and timely;


Audit Committee Report (Cont’d)

TERMS OF REFERENCE (continued)

Objectives (continued)

(c) oversee compliance with laws and regulations and observance of a proper code of conduct; and (d) determine the quality, adequacy and effectiveness of the Group’s control environment. Authority The Audit Committee shall, in accordance with a procedure to be determined by the Board and at the expense of the Company, (a) have explicit authority to investigate any matter within its terms of reference, the resources to do so, and full access to

information. All employees shall be directed to co-operate as requested by members of the Audit Committee. (b) have full and unlimited/unrestricted access to all information and documents/resources which are required to perform its

duties as well as to the internal and external auditors and senior management of the Company and Group. (c) obtain independent professional or other advice and to invite outsiders with relevant experience to attend, if necessary. (d) have direct communication channels with the external auditors and person(s) carrying out the internal audit function or

activity (if any). (e) where the Audit Committee is of the view that the matter reported by it to the Board has not been satisfactorily resolved

resulting in a breach of the Listing Requirements, the Audit Committee shall promptly report such matter to Bursa Securities. Duties and Responsibilities The duties and responsibilities of the Audit Committee are as follows: (a) To consider the appointment of the external auditors, the audit fee and any question of resignation or dismissal; (b) To discuss with the external auditors before the audit commences, the nature and scope of the audit, and ensure co-

ordination where more than one audit firm is involved; (c) To review with the external auditors their evaluation of the system of internal controls and the audit report; (d) To review the quarterly and year-end financial statements of the Board, focusing particularly on: - any change in accounting policies and practices; - significant adjustments arising from the audit; - the going concern assumption; and - compliance with accounting standards and other legal requirements. (e) To discuss problems and reservations arising from the interim and final audits, and any matter the auditors may wish to

discuss (in the absence of management, where necessary); (f) To review the external auditors’ management letter and management’s response;



TERMS OF REFERENCE (continued) Duties and Responsibilities (continued)

(g) To do the following, in relation to the internal audit function: - consider the appointment of the internal auditors, the audit fee and any question of resignation or dismissal;

- review the adequacy of the scope, functions, competency and resources of the internal audit function, and that it has the necessary authority to carry out its work;

- review the internal audit programme and results of the internal audit process and, where necessary, ensure that

appropriate actions are taken on the recommendations of the internal audit function; (h) To consider any related party transactions and conflict of interest situation that may arise within the Company or Group

including any transaction, procedure or course of conduct that raises questions of management integrity; (i) To report its findings on the financial and management performance, and other material matters to the Board; (j) To consider the major findings of internal investigations and management’s response; (k) To consider other topics as defined by the Board; (l) To advise the Board and make recommendation in respect of risk management as to the following matters:

- To monitor risk management processes are integrated into all core business processes and that the culture of the organization reflects the risk consciousness of the Board;

- Review the Risk Register and ensure that all risks are well managed; - Review the enterprise risk scorecard and determine the risks to be escalated to the Board once a year; and

- Provide a consolidated risk and assurance report to the Board to support the statement relating to internal control in the Company’s Annual Report.

(m) To consider and examine such other matters as the Audit Committee considers appropriate. SUMMARY OF ACTIVITIES OF THE AUDIT COMMITTEE The activities of the Audit Committee as stipulated in Duties and Responsibilities were undertaken by the Audit Committee during the financial year ended 31 December 2012. The Audit Committee had also undertaken the following activities during the financial year: (a) Reviewed quarterly unaudited financial results and the annual audited financial statements of the Company before

recommending them for the Board’s approval; (b) Reviewed and approved the internal and external auditors’ scope of work and audit plan for the year. Prior to the audit

commencement, representatives from the internal and external auditors presented their audit strategy and plan; (c) Reviewed the findings of the internal and external auditors and reported to the Board; (d) Reviewed the related party transactions that are required to be transacted at an arm’s length basis and are not detrimental

to the interest of minority shareholders; and (e) Reviewed and deliberated the emerging financial reporting issue pursuant to the new accounting standards and additional

statutory disclosure requirements.



INTERNAL AUDIT FUNCTION The Group has outsourced its internal audit function to NeedsBridge Advisory Sdn. Bhd., an independent professional firm performing the internal audit function of the Group in order to assist the Audit Committee in discharging its duties in regards to the adequacy and integrity of the system of internal control. Its role include the following:

- Perform review of operational compliance with the established internal control procedures and the risk profiles of the major business units of the Group;

- Conduct investigations on areas and issues specified by the Audit Committee; and - Review the risk management process. Internal audit plans of the Group is presented to the Audit Committee for approval. Any findings and weaknesses noted during the audit fieldwork are forwarded to the management for its attention and further action. The internal audit reports which incorporated the audit findings, audit recommendations and management responses were issued to the Audit Committee and tabled to the Audit Committee meetings. The internal auditors also follow up with the management in the implementation of the agreed audit recommendations. None of the internal control weeknesses have resulted in any material losses, contingencies or uncertainties that would require disclosure in the Annual Report. The total costs incurred for the internal audit function of the Group for the financial year was RM26,556.


Directors’ Responsibility Statement

In Relation to the Financial Statements

The Directors are required under the provisions of the Companies Act, 1965 to prepare financial statements as at the end of each financial year in accordance with applicable approved accounting standards and which gives a true and fair view of the state of affairs of the Group and the Company and their results and cash flows for each financial year. The Directors are of the view that the Group and the Company have adopted suitable accounting policies and applied them consistently; made judgements and estimates that are reasonable and prudent; as well as ensured that all applicable accounting standards have been followed; and confirm that the financial statements have been prepared on a going concern basis. The Directors are responsible for ensuring that the Company maintains proper accounting records that disclose with reasonble accuracy the financial position of the Group and of the Company, and which enable them to ensure that the financial statements comply with the Companies Act, 1965. The Directors are also responsible for taking necessary steps to safeguard the assets of the Group, and to prevent and detect fraud as well as other irregularities.

29 Directors’ Report

32 Statement by Directors

32 Statutory Declaration

33 Independent Auditors’ Report

35 Statements of Comprehensive Income

36 Statements of Financial Position

37 Statements of Changes in Equity

39 Statements of Cash Flows

41 Notes to the Financial Statements

80 Supplementary information

Financial Statementsfor the financial year ended 31 December 2012


Directors’ Report

The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2012. Principal activities The principal activity of the Company is investment holding. The principal activities of the subsidiaries are described in Note 17 to the financial statements. There have been no significant changes in the nature of the principal activities during the financial year. Results

Group Company RM RM Profit net of tax 724,218 675,298 Profit attributable to: Owners of the parent 729,118 675,298 Non-controlling interests (4,900) - 724,218 675,298

There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements. In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature. Dividend The amount of dividend paid by the Company since 31 December 2011 was as follows: RMIn respect of the financial year ended 31 December 2011 as reported in the director’s report of that year: - Final tax exempt (single-tier) dividend of 2% on 80,000,000 ordinary shares, declared on 28 June 2012 and paid on 8 August 2012 800,000

The directors do not recommend any dividend to be paid in respect of the current financial year. Directors The names of the directors of the Company in office since the date of the last report and at the date of this report are: Low Kim Hock Low Kim Joo Low Kim Chung Low Yong Seng Chong Peng Khang Yap Koon Roy Peter Yong Kuen Fook


Directors’ Report (Cont’d)

Directors’ benefits Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors or the fixed salary of a full-time employee of the Company as shown in Note 9 to the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 29 to the financial statements. Directors’ interests According to the register of directors’ shareholdings, the interests of directors in office at the end of the financial year in shares in the Company and its related corporations during the financial year were as follows: Number of ordinary shares of RM0.50 each 1.1.2012 Acquired Sold 31.12.2012

Direct interest Low Kim Hock 4,320,000 - - 4,320,000 Low Kim Joo 2,592,000 - - 2,592,000 Low Kim Chung 2,304,000 - - 2,304,000 Low Yong Seng 40,000 - - 40,000 Yap Koon Roy 30,000 - - 30,000 Peter Yong Kuen Fook 30,000 - - 30,000 Indirect interest Low Kim Hock 36,040,000 - - ^ 36,040,000 Low Kim Joo 36,000,000 - - * 36,000,000 Low Kim Chung 36,000,000 - - * 36,000,000 ^ Deemedinterestedbyvirtueofthedirectinterestofhisson,LowYongSengandhisdirectinterestinJasaMajuJayaSdn.

Bhd.pursuanttoSection6AoftheCompaniesAct,1965.* DeemedinterestedbyvirtueoftheirdirectinterestinJasaMajuJayaSdn.Bhd.pursuanttoSection6AoftheCompaniesAct,

1965. Low Kim Hock, Low Kim Joo and Low Kim Chung by virtue of their interests in shares in the Company are also deemed interested in shares of all the Company’s subsidiaries to the extent the Company has an interest. The other director in office at the end of the financial year had no interest in shares in the Company or its related corporations during the financial year. Other statutory information (a) Before the statements of comprehensive income and statements of financial position of the Group and of the Company were

made out, the directors took reasonable steps:

(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfied themselves that there were no known bad debts and that adequate provision had been made for doubtful debts; and

(ii) to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in the

ordinary course of business had been written down to an amount which they might be expected so to realise.


Directors’ Report (Cont’d)

Other statutory information (continued) (b) At the date of this report, the directors are not aware of any circumstances which would render:

(i) it necessary to write off any bad debts or the amount of the provision for doubtful debts inadequate to any substantial extent; and

(ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading.

(c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence

to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or

financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading.

(e) At the date of this report, there does not exist:

(i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or

(ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year. (f) In the opinion of the directors:

(i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and

(ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the

financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made.

Significant events In addition to the significant events disclosed elsewhere in this report, other significant events are disclosed in Note 17 to the financial statements. Auditors The auditors, Ernst & Young, have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the directors dated 18 April 2013.

Low Kim Hock Low Kim Joo


Statement by DirectorsPursuant to Section 169 (15) of the Companies Act, 1965

Statutory declarationPursuant to Section 169 (16) of the Companies Act, 1965

We, Low Kim Hock and Low Kim Joo, being two of the directors of Hock Heng Stone Industries Bhd., do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 35 to 79 are drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2012 and of their financial performance and cash flows for the year then ended. The information set out in Note 37 to the financial statements have been prepared in accordance with the Guidance on Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants. Signed on behalf of the Board in accordance with a resolution of the directors dated 18 April 2013.

Low Kim Hock Low Kim Joo

I, Low Kim Hock, being the director primarily responsible for the financial management of Hock Heng Stone Industries Bhd., do solemnly and sincerely declare that the accompanying financial statements set out on pages 35 to 80 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed Low Kim Hock at Melaka in the State of Melakaon 18 April 2013 Low Kim Hock

Before me,

ONG SAN KEE Commissioner for Oaths


Independent Auditors’ Reportto the members of Hock Heng Stone Industries Bhd.

(Incorporated in Malaysia)

Report on the financial statements We have audited the financial statements of Hock Heng Stone Industries Bhd., which comprise the statements of financial position as at 31 December 2012 of the Group and of the Company, and the statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 35 to 79. Directors’responsibilityforthefinancialstatements The directors of the Company are responsible for the preparation of financial statements that give a true and fair view in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia, and for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2012 and of their financial performance and cash flows for the year then ended.

Report on other legal and regulatory requirements In accordance with the requirements of the Companies Act 1965 in Malaysia, we also report the following: (a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its

subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. (b) We have considered the financial statements and the auditors’ report of all of the subsidiaries of which we have not acted

as auditors, which is indicated in Note 17 to the financial statements, being financial statements that have been included in the consolidated financial statements.

(c) We are satisfied that the financial statements of the subsidiaries that have been consolidated with the financial statements

of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.

(d) The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification and did not include

any comment required to be made under Section 174(3) of the Act.


Independent Auditors’ Report (Cont’d)to the members of Hock Heng Stone Industries Bhd.

(Incorporated in Malaysia)

Other matters The supplementary information set out in Note 37 on page 80 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young Sandra Segaran A/L Muniandy @ Krishnan AF: 0039 2882/01/15(J) Chartered Accountants Chartered Accountant Melaka, Malaysia Date: 18 April 2013


Statements of Comprehesive IncomeFor the financial year ended 31 December 2012

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

Group Company Note 2012 2011 2012 2011 RM RM RM RM Revenue 4 34,717,679 40,301,556 1,080,000 740,000 Cost of sales (26,297,831) (29,844,075) - -

Gross profit 8,419,848 10,457,481 1,080,000 740,000 Other income 5 452,958 413,724 37,389 78,899 Other items of expenses Selling and distribution expenses (569,922) (561,099) - - Administrative and general expenses (5,911,651) (6,028,146) (190,545) (182,180)Finance costs 6 (1,350,902) (1,161,905) (2,546) -

Profit before tax 7 1,040,331 3,120,055 924,298 636,719 Income tax expense 10 (316,113) (889,833) (249,000) (169,000)

Profit net of tax, representing total comprehensive income for the year 724,218 2,230,222 675,298 467,719

Total comprehensive income attributable to: Owners of the parent 729,118 2,225,726 Non-controlling interests (4,900) 4,496

724,218 2,230,222

Earnings per share attributable to owners of the parent (sen per share): Basic 11 0.91 2.78


Statements of Financial PositionAs at 31 December 2012


Group Company Note 2012 2011 2012 2011 RM RM RM RM Assets Non-current assets Property, plant and equipment 12 25,275,204 25,430,906 - - Investment properties 13 1,485,252 1,512,642 - - Land use rights 14 2,484,076 2,543,197 - - Land held for property development 15 21,027,539 - - - Development expenditure 16 379,000 379,000 - - Investments in subsidiaries 17 - - 36,719,199 36,079,000

50,651,071 29,865,745 36,719,199 36,079,000

Current assets Inventories 18 26,737,956 25,396,502 - - Trade and other receivables 19 21,082,217 19,795,366 4,808,828 1,966,456 Other current assets 20 5,013,169 4,559,591 - - Income tax receivable 332,481 51,600 23,656 33,500 Cash and bank balances 22 3,307,157 4,664,246 26,038 2,135,191

56,472,980 54,467,305 4,858,522 4,135,147

Total assets 107,124,051 84,333,050 41,577,721 40,214,147

Equity and liabilitiesCurrent liabilities Income tax payable 10,073 258,629 - - Loans and borrowings 23 16,266,945 12,999,662 - - Trade and other payables 24 13,478,243 8,455,921 1,564,337 76,061 Other current liability 25 155,938 271,185 - -

29,911,199 21,985,397 1,564,337 76,061

Net current assets 26,561,781 32,481,908 3,294,185 4,059,086

Non-current liabilities Deferred tax liabilities 26 863,469 1,150,050 - - Loans and borrowings 23 25,654,855 10,784,465 - -

26,518,324 11,934,515 - -

Total liabilities 56,429,523 33,919,912 1,564,337 76,061

Net assets 50,694,528 50,413,138 40,013,384 40,138,086

Equity attributable to owners of the parent Share capital 27 40,000,000 40,000,000 40,000,000 40,000,000 Retained earnings 28 10,284,285 10,355,167 13,384 138,086

50,284,285 50,355,167 40,013,384 40,138,086 Non-controlling interests 410,243 57,971 - -

Total equity 50,694,528 50,413,138 40,013,384 40,138,086

Total equity and liabilities 107,124,051 84,333,050 41,577,721 40,214,147


Statements of Changes in EquityFor the financial year ended 31 December 2012

Attributable to equity holders of the parent Equity attributable to owners Distributable Non- Equity, of the parent, Share Retained controlling Note total total capital earnings interests RM RM RM RM RM Group Opening balance at 1 January 2012 50,413,138 50,355,167 40,000,000 10,355,167 57,971 Total comprehensive income 724,218 729,118 - 729,118 (4,900) Transactions with owners Dividend on ordinary shares 35 (800,000) (800,000) - (800,000) - Acquisition of subsidiary (2,827) - - - (2,827)Additional investment in subsidiary 359,999 - - - 359,999 (442,828) (800,000) - (800,000) 357,172 Closing balance at 31 December 2012 50,694,528 50,284,285 40,000,000 10,284,285 410,243 Opening balance at 1 January 2011 48,982,916 48,929,441 40,000,000 8,929,441 53,475 Total comprehensive income 2,230,222 2,225,726 - 2,225,726 4,496 Transactions with owners Dividend on ordinary shares 35 (800,000) (800,000) - (800,000) - Closing balance at 31 December 2011 50,413,138 50,355,167 40,000,000 10,355,167 57,971


Statements of Changes in Equity (Cont’d)For the financial year ended 31 December 2012


Distributable Equity, Share Retained Note total capital earnings RM RM RM Company Opening balance at 1 January 2012 40,138,086 40,000,000 138,086 Total comprehensive income 675,298 - 675,298 Transactions with owners Dividend on ordinary shares 35 (800,000) - (800,000) Closing balance at 31 December 2012 40,013,384 40,000,000 13,384 Opening balance at 1 January 2011 40,470,367 40,000,000 470,367 Total comprehensive income 467,719 - 467,719 Transactions with owners Dividend on ordinary shares 35 (800,000) - (800,000) Closing balance at 31 December 2011 40,138,086 40,000,000 138,086


Statements of Cash FlowsFor the financial year ended 31 December 2012

Group Company 2012 2011 2012 2011 Note RM RM RM RM

Operating activities Profit before tax 1,040,331 3,120,055 924,298 636,719 Adjustments for: Depreciation of property, plant and equipment 2,087,293 2,088,880 - - Depreciation of investment properties 27,390 33,156 - - Amortisation of land use rights 59,121 59,121 - - Impairment loss on trade receivables 260,805 97,172 - - Reversal of impairment loss on trade receivables (24,500) - - - Dividend income - - (1,080,000) (740,000) Net gain on disposal of property, plant and equipment (295,687) - - - Net gain on disposal of investment properties - (252,440) - - Property, plant and equipment written off - 717 - - Goodwill written off 5,440 - - - Unrealised (gain)/loss on foreign exchange (43,595) 20,233 - - Interest expense 1,350,902 1,161,905 2,546 - Interest income (51,683) (95,758) (37,389) (78,899)

Total adjustments 3,375,486 3,112,986 (1,114,843) (818,899)

Operating cash flows before changes in working capital 4,415,817 6,233,041 (190,545) (182,180)Changes in working capital Increase in inventories (1,341,454) (3,498,945) - - Increase in trade and other receivables (1,523,156) (239,993) - - (Increase)/decrease in other current assets (453,578) 838,027 - - Increase/(decrease) in trade and other payables 5,058,850 (757,227) (33,758) 19,458 (Decrease)/increase in other current liability (115,247) 165,826 - -

Total changes in working capital 1,625,415 (3,492,312) (33,758) 19,458

Cash flows from/(used in) operations 6,041,232 2,740,729 (224,303) (162,722)Interest paid (1,481,338) (1,364,967) (2,546) - Income taxes refund - 69,240 30,844 - Income taxes paid (1,132,131) (941,810) - -

Net cash flows from/(used in) operating activities 3,427,763 503,192 (196,005) (162,722)


Statements of Cash Flows (Cont’d)For the financial year ended 31 December 2012

Group Company 2012 2011 2012 2011 Note RM RM RM RM

Investing activities Purchase of property, plant and equipment (2,599,422) (1,565,438) - - Purchase of land held for property development (21,027,539) - - - Proceeds from disposal of property, plant and equipment 1,751,954 - - - Proceeds from disposal of investment properties - 668,800 - - Interest received 51,683 95,758 37,389 78,899 Dividend received - - 810,000 555,000 Incorporation of a subsidiary - - - (1,000)Acquisition of subsidiary 17 (1,200) - (1,200) - Additional shares in subsidiaries - - (638,999) (3,000,000)Proceeds from acquisition of non-controlling interests 359,999 - - -

Net cash flows (used in)/from investing activities (21,464,525) (800,880) 207,190 (2,367,101)

Financing activities Dividend paid on ordinary shares (800,000) (800,000) (800,000) (800,000)(Advances to)/repayment from subsidiaries - - (1,320,338) 3,080,445 Proceeds from loans and borrowings 18,405,000 2,700,000 - - Repayment of loans and borrowings (620,061) (1,982,921) - - Repayment of obligations under finance leases (388,085) (432,281) - -

Net cash flows from/(used in) financing activities 16,596,854 (515,202) (2,120,338) 2,280,445

Net decrease in cash and cash equivalents (1,439,908) (812,890) (2,109,153) (249,378)Cash and cash equivalents at beginning of the year 2,194,716 3,007,606 2,135,191 2,384,569

Cash and cash equivalents at end of the year 22 754,808 2,194,716 26,038 2,135,191



1. Corporate information Hock Heng Stone Industries Bhd. (“the Company”) is a public limited liability company, incorporated and domiciled in

Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad. The principal place of business is located at Lot 197, Jalan Sungai Putat, Batu Berendam, 75350 Melaka.

The principal activity of the Company is investment holding. The principal activities of the subsidiaries are described in

Note 17 to the financial statements. There have been no significant changes in the nature of the principal activities during the financial year.

2. Summary of significant accounting policies

2.1 Basis of preparation The financial statements of the Group and of the Company have been prepared in accordance with Financial Reporting

Standards (“FRS”) and the Companies Act, 1965 in Malaysia. The financial statements of the Group and of the Company have been prepared on a historical basis except as

disclosed in the accounting policies below and are presented in Ringgit Malaysia (RM). 2.2 Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year except as follows: On 1 January 2012, the Group and the Company adopted the following FRSs, amended FRSs and IC Interpretations

mandatory for annual financial periods beginning on or after 1 July 2011.

Effectiveforfinancialperiodsbeginningonorafter1July2011 • IC Interpretation 19: ExtinguishingFinancialLiabilitieswithEquityInstruments • Amendments to IC Interpretation 14: PrepaymentsofaMinimumFundingRequirement Effectiveforfinancialperiodsbeginningonorafter1January2012 • Amendments to FRS 1: SevereHyperinflationandRemovalofFixedDatesforFirst-timeAdopters • Amendments to FRS 7: Disclosures-TransfersofFinancialAssets • Amendments to FRS 112: DeferredTax:RecoveryofUnderlyingAssets • FRS 124: RelatedPartyDisclosures Adoption of the above FRSs, amended FRSs and IC Interpretations did not have any effect on the financial performance

or position of the Group and of the Company. 2.3 Standards issued but not yet effective The standards and interpretations that are issued but not yet effective up to the date of issuance of the Group’s and the

Company’s financial statements are disclosed below. The Group and the Company intend to adopt these standards, if applicable, when they become effective.

Effective for annual periods Description beginning on or after

FRS 101 Presentation of Items of Other Comprehensive Income (Amendments to FRS 101) 1 July 2012 Amendments to FRS 101: Presentation of Financial Statements (Improvements to FRSs (2012)) 1 January 2013 FRS 10 Consolidated Financial Statements 1 January 2013 FRS 11 Joint Arrangements 1 January 2013 FRS 12 Disclosure of interests in Other Entities 1 January 2013 FRS 13 Fair Value Measurement 1 January 2013

Notes to the Financial StatementsFor the financial year ended 31 December 2012


Notes to the Financial Statements (Cont’d)For the financial year ended 31 December 2012

2. Summary of significant accounting policies (continued) 2.3 Standards issued but not yet effective (continued)

Effective for annual periods Description beginning on or after

FRS 119 Employee Benefits 1 January 2013 FRS 127 Separate Financial Statements 1 January 2013 FRS 128 Investment in Associate and Joint Ventures 1 January 2013 Amendment to IC Interpretation 2 Members’ Shares in Co-operative Entities and 1 January 2013 Similar Instruments (Improvements to FRSs (2012)) IC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013 Amendments to FRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities 1 January 2013 Amendments to FRS 1: First-time Adoption of Malaysian Financial Reporting 1 January 2013 Standards – Government Loans Amendments to FRS 1: First-time Adoption of Malaysian Financial Reporting Standards 1 January 2013 (Improvements to FRSs (2012)) Amendments to FRS 116: Property, Plant and Equipment (Improvements to FRSs (2012)) 1 January 2013 Amendments to FRS 132: Financial Instruments: Presentation (Improvements to FRSs (2012)) 1 January 2013 Amendments to FRS134: Interim Financial Reporting (Improvements to FRSs (2012)) 1 January 2013 Amendments to FRS 10: Consolidated Financial Statements: Transition Guidance 1 January 2013 Amendments to FRS 11: Joint Arrangements: Transition Guidance 1 January 2013 Amendments to FRS 12: Disclosure of Interests in Other Entities: Transition Guidance 1 January 2013 Amendments to FRS 132: Offsetting Financial Assets and Financial Liabilities 1 January 2014 Amendments to FRS 10, FRS 12 and FRS 127: Investment Entities 1 January 2014 FRS 9 Financial Instruments 1 January 2015

The directors expect that the adoption of the above standards and interpretations will have no material impact on the financial statements in the period of initial application except as discussed below:

FRS 13 Fair Value Measurement FRS 13 establishes a single source of guidance under FRS for all fair value measurements. FRS 13 does not change

when an entity is required to use fair value, but rather provides guidance on how to measure fair value under FRS when fair value is required or permitted.

Upon adoption of FRS 13, the Group will take into consideration the highest and best use of certain properties in

measuring the fair value of such properties. The adoption of FRS 13 is expected to result in higher fair value of certain properties of the Group.

Amendments to FRS 101: Presentation of Financial Statements (Annual Improvements 2009-2011 Cycle) The amendments to FRS 101 change the grouping of items presented in other comprehensive income. Items that could

be reclassified (or recycled) to profit or loss at a future point in time (for example, exchange differences on translation of foreign operations and net loss or gain on available-for-sale financial assets) would be presented separately from items which will never be reclassified (for example, actuarial gains and losses on defined benefit plans and revaluation of land and buildings). The amendments affect presentation only and have no impact on the Group’s financial position and performance.

FRS 9 Financial Instruments: Classification and Measurement FRS 9 reflects the first phase of the work on the replacement of FRS 139 Financial Instruments: Recognition and

Measurement and applies to classification and measurement of financial assets and financial liabilities as defined in FRS 139 Financial Instruments: Recognition and Measurement. The adoption of the first phase of FRS 9 will have an effect on the classification and measurement of the Group’s financial assets. The Group will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued.



2. Summary of significant accounting policies (continued)

2.4 Malaysian Financial Reporting Standards (MFRS) On 19 November 2011, the Malaysian Accounting Standards Board (MASB) issued a new MASB approved accounting

framework, the Malaysian Financial Reporting Standards (MFRS Framework). The MFRS Framework is to be applied by all Entities Other Than Private Entities for annual periods beginning on or

after 1 January 2012, with the exception of entities that are within the scope of MFRS 141 Agriculture (MFRS 141) and IC Interpretation 15 Agreements for Construction of Real Estate (IC 15), including its parent, significant investor and venturer (herein referred as “Transitioning Entities”).

Based on the MASB announcement on 30 June 2012, Transitioning Entities will be allowed to defer the adoption

of the new MFRS Framework from previous adoption date of 1 January 2013 to 1 January 2014. Consequently, the adoption of the MFRS Framework by the Transitioning Entities will be mandatory for annual periods beginning on or after 1 January 2014.

As certain subsidiaries of the Group fall within the scope of Transitioning Entities, the Group will adopt the MFRS

Framework for the financial year beginning 1 January 2014. In presenting its first MFRS financial statements, the Group will be required to restate the comparative financial statements to amounts reflecting the application of MFRS Framework. The adjustments required on transition will be made, retrospectively, against opening retained earnings.

The Group is currently in the process of determining the impact arising from the intial application of MFRS Framework.

Before the effective date, the Group will continue to prepare its financial statements using the FRSs Framework. 2.5 Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at

the reporting date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances.

All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions

are eliminated in full. All the subsidiaries are consolidated using the merger method of accounting. Acquisition of subsidiaries that meets the conditions of a merger are accounted for using the merger method. Under the

merger method of accounting, the results of subsidiaries are presented as if the merger had been effected throughout the current and previous years. In the consolidated financial statements, the cost of the merger is cancelled with the nominal values of the shares received. Any resulting debit difference is adjusted against the consolidated capital and revenue reserves.

Subsidiaries accounted for using the purchase method are consolidated from the date of acquisition, being the date

on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Acquisitions of subsidiaries that do not meet the conditions of a merger are accounted for using the purchase method.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in other comprehensive income. The cost of a business combination is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the business combination. Any excess of the cost of business combination over the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities is recorded as goodwill on the statement of financial position. Any excess of the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised as income in profit or loss on the date of acquisition. When the Group acquires a business, embedded derivatives separated from the host contract by the acquiree are reassessed on acquisition unless the business combination results in a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract.




2.6 Transactions with non-controlling interests Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group and

are presented separately in profit or loss of the Group and within equity in the consolidated statements of financial position, separately from parent shareholders’ equity. Transactions with non-controlling interests are accounted for using the entity concept method, whereby, transactions with non-controlling interests are accounted for as transactions with owners. On acquisition of non-controlling interests, the difference between the consideration and book value of the share of the net assets acquired is recognised directly in equity. Gain or loss on disposal to non-controlling interests is recognised directly in equity.

2.7 Foreign currency

(a) Functional and presentation currency The individual financial statements of each entity in the Group are measured using the currency of the primary

economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Ringgit Malaysia (RM), which is also the Company’s functional currency.

(b) Foreign currency transactions Transactions in foreign currencies are measured in the respective functional currencies of the Company and its

subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates.

Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling

at the reporting date. Non-monetary items denominated in foreign currencies that are measured at historical cost are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items denominated in foreign currencies measured at fair value are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the reporting

date are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operation.

Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit

or loss for the period except for the differences arising on the translation of non-monetary items in respect of which gains and losses are recognised directly in equity. Exchange differences arising from such non-monetary items are also recognised directly in equity.

2.8 Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and

equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Subsequent to recognition, plant and equipment are stated at cost less accumulated depreciation and accumulated

impairment losses. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.



2. Summary of significant accounting policies (continued) 2.8 Property, plant and equipment (continued)

Freehold land has an unlimited useful life and therefore is not depreciated. Depreciation of other property, plant and equipment is computed on a straight-line basis over the estimated useful lives of the assets as follows:

- Leasehold land: 90 years - Buildings and extensions: 20 to 50 years - Plant, machinery and factory equipment: 10 to 15 years - Motor vehicles: 7 years - Other assets: 5 to 10 years Building-in-progress is not depreciated as it is not yet available for use. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in

circumstances indicate that the carrying value may not be recoverable. The residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted

prospectively, if appropriate. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are

expected from its use or disposal. Any gain or loss on derecognition of the asset is included in the profit or loss in the year the asset is derecognised.

2.9 Investment properties Investment properties are properties which are held either to earn rental income or for capital appreciation or both. Such

properties are initially measured at cost, including transaction costs. Subsequent to recognition, investment properties are stated at cost less accumulated depreciation and any accumulated impairment losses. The investment properties are depreciated in accordance with that for property, plant and equipment as described in Note 2.8.

Investment properties are derecognised when either they have been disposed of or when the investment property is

permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property is recognised in profit or loss in the year of retirement or disposal.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment

property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. For a transfer from owner-occupied property to investment property, the property is accounted for in accordance with the accounting policy for property, plant and equipment set out in Note 2.8 up to the date of change in use.

2.10 Land use rights Land use rights are initially measured at cost. Following initial recognition, land use rights are measured at cost less

accumulated amortisation and accumulated impairment losses. The land use rights are amortised over their lease terms.

2.11 Development expenditure Development expenditure are capitalised in the year which they are incurred and are carried at cost. The cost of

development expenditure will be carried forward as an asset in the statements of financial position where it is expected that the expenditure will be recovered through the successful development and exploration of an area of interest.

Should the project be abandoned, the expenditure will be written off in the year in which the decision is made. Upon such time when a decision is made to proceed with development, accumulated expenditure will be amortised

over the life of the associated reserves once extraction operations have commenced.




2.12 Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such

indication exists, or when an annual impairment assessment for an asset is required, the Group makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units (“CGU”)).

In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their

present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis.

Impairment losses are recognised in profit or loss in the period in which it arises.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously.

2.13 Subsidiaries A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to

obtain benefits from its activities. In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment

losses. 2.14 Financial assets Financial assets are recognised in the statements of financial position when, and only when, the Group and the

Company become a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not

at fair value through profit or loss, directly attributable transaction costs. The Group and the Company determine the classification of their financial assets at initial recognition, and the

categories include financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. (a) Financial assets at fair value through profit or loss Financial assets are classified as financial assets at fair value through profit or loss if they are held for trading

or are designated as such upon initial recognition. Financial assets held for trading are derivatives (including separated embedded derivatives) or financial assets acquired principally for the purpose of selling in the near term.




2.14 Financial assets (continued)

(a) Financial assets at fair value through profit or loss (continued)

Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value are recognised in profit or loss. Net gains or net losses on financial assets at fair value through profit or loss do not include exchange differences, interest and dividend income. Exchange differences, interest and dividend income on financial assets at fair value through profit or loss are recognised separately in profit or loss as part of other losses or other income.

Financial assets at fair value through profit or loss could be presented as current or non-current. Financial assets

that are held primarily for trading purposes are presented as current whereas financial assets that are not held primarily for trading purposes are presented as current or non-current based on the settlement date.

(b) Loans and receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as

loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest

method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.

Loans and receivables are classified as current assets, except for those having maturity dates later than 12

months after the reporting date which are classified as non-current. (c) Held-to-maturity investments Financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when

the Group has the positive intention and ability to hold the investment to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective

interest method. Gains and losses are recognised in profit or loss when the held-to-maturity investments are derecognised or impaired, and through the amortisation process.

Held-to-maturity investments are classified as non-current assets, except for those having maturity within 12

months after the reporting date which are classified as current. (d) Available-for-sale financial assets Available-for-sale financial assets are financial assets that are designated as available for sale or are not classified

in any of the three preceding categories. After initial recognition, available-for-sale financial assets are measured at fair value. Any gains or losses

from changes in fair value of the financial assets are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised. Interest income calculated using the effective interest method is recognised in profit or loss. Dividends on an available-for-sale equity instrument are recognised in profit or loss when the Group and the Company’s right to receive payment is established.

Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less

impairment loss. Available-for-sale financial assets are classified as non-current assets unless they are expected to be realised

within 12 months after the reporting date.




2.14 Financial assets (continued)

A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the

period generally established by regulation or convention in the marketplace concerned. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e., the date that the Group and the Company commit to purchase or sell the asset.

2.15 Impairment of financial assets

The Group and the Company assess at each reporting date whether there is any objective evidence that a financial asset is impaired.

(a) Trade and other receivables and other financial assets carried at amortised cost To determine whether there is objective evidence that an impairment loss on financial assets has been incurred,

the Group and the Company consider factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis based on similar risk characteristics.

Objective evidence of impairment for a portfolio of receivables could include the Group’s and the Company’s

past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period and observable changes in national or local economic conditions that correlate with default on receivables.

If any such evidence exists, the amount of impairment loss is measured as the difference between the asset’s

carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the

exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable becomes uncollectible, it is written off against the allowance account.

If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss.

(b) Available-for-sale financial assets Significant or prolonged decline in fair value below cost, significant financial difficulties of the issuer or obligor,

and the disappearance of an active trading market are considerations to determine whether there is objective evidence that investment securities classified as available-for-sale financial assets are impaired.

If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net

of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to profit or loss.

Impairment losses on available-for-sale equity investments are not reversed in profit or loss in the subsequent

periods. Increase in fair value, if any, subsequent to impairment loss is recognised in other comprehensive income. For available-for-sale debt investments, impairment losses are subsequently reversed in profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss in profit or loss.




2.16 Cash and cash equivalents Cash and cash equivalents comprise cash at banks, cash on hand and deposits that are subject to an insignificant risk

of changes in value. These also include bank overdrafts that form an integral part of the Group’s cash management. 2.17 Construction contracts Where the outcome of a construction contract can be reliably estimated, contract revenue and contract costs are

recognised as revenue and expenses respectively by using the stage of completion method. The stage of completion is measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the

extent of contract costs incurred that are likely to be recoverable. Contract costs are recognised as expense in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an

expense immediately. Contract revenue comprises the initial amount of revenue agreed in the contract and variations in contract work,

claims and incentive payments to the extent that it is probable that they will result in revenue and they are capable of being reliably measured.

When the total of costs incurred on construction contracts plus recognised profits (less recognised losses) exceeds

progress billings, the balance is classified as amount due from customers on contracts. When progress billings exceed costs incurred plus, recognised profits (less recognised losses), the balance is classified as amount due to customers on contracts.

2.18 Land held for property development Land held for property development consist of land where no development activities have been carried out or where

development activities are not expected to be completed within the normal operating cycle. Such land is classified within non-current assets and is stated at cost less any accumulated impairment losses.

Land held for property development is reclassified as property development costs at the point when development

activities have commenced and where it can be demonstrated that the development activities can be completed within the normal operating cycle.

2.19 Inventories Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing the inventories to their

present location and condition are accounted for as follows:

- Raw materials: purchase costs on a first in, first out basis. - Finished goods and work-in-progress: costs of direct materials and labour and a proportion of manufacturing

overheads based on normal operating capacity. These costs are assigned an a first-in, first-out basis.

Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale.




2.20 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event,

it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably.

Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer

probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

2.21 Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the

definitions of a financial liability. Financial liabilities, within the scope of FRS 139, are recognised in the statements of financial position when, and only

when, the Group and the Company become a party to the contractual provisions of the financial instrument. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.

(a) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial

liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities held for trading include derivatives entered into by the Group and the Company that do not

meet the hedge accounting criteria. Derivative liabilities are initially measured at fair value and subsequently stated at fair value, with any resultant gains or losses recognised in profit or loss. Net gains or losses on derivatives include exchange differences.

The Group and the Company have not designated any financial liabilities as at fair value through profit or loss. (b) Other financial liabilities The Group’s and the Company’s other financial liabilities include trade payables, other payables and loans and

borrowings. Trade and other payables are recognised initially at fair value plus directly attributable transaction costs and

subsequently measured at amortised cost using the effective interest method. Loans and borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently

measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

For other financial liabilities, gains and losses are recognised in profit or loss when the liabilities are derecognised,

and through the amortisation process. A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial

liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.




2.22 Borrowing costs Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition,

construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale.

All other borrowing costs are recognised in profit or loss in the period they are incurred. Borrowing costs consist of interest

and other costs that the Group and the Company incurred in connection with the borrowing of funds. 2.23 Employee benefits Defined contribution plans The Group participates in the national pension schemes as defined by the laws of the countries in which it has

operations. The Malaysian companies in the Group make contributions to the Employee Provident Fund in Malaysia, a defined contribution pension scheme. Contributions to defined contribution pension schemes are recognised as an expense in the period in which the related service is performed.

2.24 Leases

(a) As lessee Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the

leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.

Leased assets are depreciated over the estimated useful life of the asset. However, if there is no reasonable

certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life and the lease term.

Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease

term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.

(b) As lessor Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as

operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. The accounting policy for rental income is set out in Note 2.25(e).

2.25 Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable.

(a) Sale of goods Revenue from sale of goods is recognised upon the transfer of significant risk and rewards of ownership of

the goods to the customer. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.




2.25 Revenue (continued)

(b) Construction contracts Revenue from construction contracts is accounted for by the stage of completion method as described in Note

2.17. (c) Interest income Interest income is recognised using the effective interest method. (d) Dividend income Dividend income is recognised when the Group’s right to receive payment is established. (e) Rental income Rental income is accounted for on a straight-line basis over the lease terms. The aggregate costs of incentives

provided to lessees are recognised as a reduction of rental income over the lease term on a straight-line basis.

2.26 Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder

for a loss it incurs because a specified debtor fails to make payment when due. Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs. Subsequent

to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Group, as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount initially recognised less cumulative amortisation.

2.27 Income taxes

(a) Current tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the

taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside

profit or loss, either in other comprehensive income or directly in equity. (b) Deferred tax Deferred tax is provided using the liability method on temporary differences at the reporting date between the

tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all temporary differences, except:

- where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability

in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of taxable temporary differences associated with investments in subsidiaries, associates and

interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.




2.27 Income taxes (continued)

(b) Deferred tax (continued) Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits

and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

- where the deferred tax asset relating to the deductible temporary difference arises from the initial

recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no

longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is

realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items

are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets

against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. (c) Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except:

- Where the sales tax incurred in a purchase of assets or services is not recoverable from the taxation authority,

in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

- Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables

or payables in the statements of financial position. 2.28 Segment reporting

For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the management of the Company who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 34, including the factors used to identify the reportable segments and the measurement basis of segment information.



2. Summary of significant accounting policies (continued) 2.29 Share capital and share issuance expenses

An equity instrument is any contract that evidences a residual interest in the assets of the Group and the Company after deducting all of its liabilities. Ordinary shares are equity instruments.

Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs.

Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.

3. Significant accounting judgements and estimates The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions

that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

3.1 Judgements made in applying accounting policies The management did not make any critical judgement in the process of applying the Group’s accounting policies that

have a significant effect on the amounts recognised in the financial statements. 3.2 Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that

have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

(a) Useful lives of plant, machinery and factory equipment The cost of plant, machinery and factory equipment for the manufacture of dimension stones is depreciated

on a straight-line basis over the assets’ useful lives. Management estimates the useful lives of these plant and machinery to be 10 to 15 years. These are common life expectancies applied in the industry. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised.

(b) Impairment of loans and receivables The Group assesses at each reporting date whether there is any objective evidence that a financial asset is

impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.

Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated

based on historical loss experience for assets with similar credit risk characteristics. The carrying amount of the Group’s loans and receivables at the reporting date is disclosed in Note 19. If the present value of estimated future cash flows varies by 5% from management’s estimates, the Group’s allowance for impairment will increase/decrease by RM95,000.



4. Revenue

Group Company 2012 2011 2012 2011 RM RM RM RM

Sales of goods 28,095,063 26,252,187 - - Construction revenue 6,622,616 14,049,369 - - Dividend income from subsidiaries - - 1,080,000 740,000

34,717,679 40,301,556 1,080,000 740,000

5. Other income


Net gain on disposal of property, plant and equipment 295,687 - - - Net gain on disposal of investment properties - 252,440 - - Gain on foreign exchange: - realised 3,405 9,338 - - - unrealised 43,595 - - - Reversal of impairment loss on trade receivables 24,500 - - - Interest income 51,683 95,758 37,389 78,899 Rental income 31,200 37,500 - - Sundry income 2,888 18,688 - -

452,958 413,724 37,389 78,899

6. Finance costs


Interest expense on: - Bank loans, bankers’ acceptances and bank overdrafts 1,422,040 1,297,468 - - - Obligations under finance leases 59,298 67,499 - - - Amount due to subsidiary - - 2,546 -

1,481,338 1,364,967 2,546 - Less: Interest expense capitalised in building-in-progress (130,436) (203,062) - -

Total finance costs 1,350,902 1,161,905 2,546 -



7. Profit before tax The following items have been included in arriving at profit before tax: Group Company 2012 2011 2012 2011 RM RM RM RM

Auditors’ remuneration: - statutory audits 79,000 67,000 17,000 15,000 - other services 22,300 20,300 5,900 5,400 Employee benefits expense (Note 8) 4,589,327 4,629,019 14,400 - Non-executive directors’ remuneration (Note 9) 79,200 79,200 79,200 79,200 Amortisation of land use rights 59,121 59,121 - - Depreciation of property, plant and equipment 2,087,293 2,088,880 - - Depreciation of investment properties 27,390 33,156 - - Direct operating expenses arising from investment properties: - Rental generating properties 2,332 2,525 - - - Non-rental generating properties 5,571 5,768 - - Property, plant and equipment written off - 717 - - Goodwill written off 5,440 - - - Impairment loss on trade receivables 260,805 97,172 - - Loss on foreign exchange - unrealised - 20,233 - - Operating lease: - Minimum lease payments on motor vehicles and office equipment 5,342 31,764 - - - Minimum lease payments on land and buildings 106,700 101,366 - -

8. Employee benefits expense


Executive directors (Note 9) Executive directors of the Company 970,565 933,638 14,400 - Executive directors of subsidiaries 323,022 281,186 - -

1,293,587 1,214,824 14,400 -

Other staff Wages, salaries and bonus 2,901,459 2,997,918 - - Contributions to defined contribution plan 270,536 276,114 - - Social security contribution 29,620 33,008 - - Other benefits 94,125 107,155 - -

3,295,740 3,414,195 - -

4,589,327 4,629,019 14,400 -



9. Directors’ remuneration


Directors of the Company Executive: - Salaries and other emoluments 566,757 571,378 2,400 - - Fees 330,600 299,600 12,000 - - Contributions to defined contribution plan 70,728 60,180 - - - Social security contribution 2,480 2,480 - - - Estimated money value of benefits-in-kind 33,023 19,900 - -

1,003,588 953,538 14,400 -

Non-Executive: - Fees 72,000 72,000 72,000 72,000 - Allowances 7,200 7,200 7,200 7,200

79,200 79,200 79,200 79,200

Directors of subsidiaries Executive: - Salaries and other emoluments 174,000 156,000 - - - Fees 125,000 105,000 - - - Contributions to defined contribution plan 22,162 18,432 - - - Social security contribution 1,860 1,754 - -

323,022 281,186 - -

Total excluding benefits-in-kind 1,372,787 1,294,024 93,600 79,200 Estimated money value of benefits-in-kind 33,023 19,900 - -

1,405,810 1,313,924 93,600 79,200

Analysis of directors’ remuneration: Executive directors, excluding benefits-in-kind (Note 8) 1,293,587 1,214,824 14,400 - Non-Executive directors (Note 7) 79,200 79,200 79,200 79,200

Total excluding benefits-in-kind 1,372,787 1,294,024 93,600 79,200 The number of directors of the Company whose total remuneration during the financial year fell within the following bands

is analysed below: 2012 2011 Number of directors Number of directors Non- Non- Executive Executive Executive Executiv

RM1 – RM50,000 - 3 - 3 RM50,001 – RM100,000 - - - - RM100,001 – RM150,000 - - - - RM150,001 – RM200,000 1 - 2 - RM200,001 – RM250,000 1 - - - RM250,001 – RM300,000 1 - 1 - RM300,001 – RM350,000 1 - 1 -



10. Income tax expense Major components of income tax expense The major components of income tax expense for the years ended 31 December 2012 and 2011 are: Group Company 2012 2011 2012 2011 RM RM RM RM

Statement of comprehensive income: Current income tax: - Based on results for the year 658,000 1,201,000 249,000 169,000 - Overprovision in respect of previous years (55,306) (48,819) - -

602,694 1,152,181 249,000 169,000

Deferred tax (Note 26): - Origination and reversal of temporary differences (291,081) (315,927) - - - Underprovision in respect of previous years 4,500 53,579 - -

(286,581) (262,348) - -

316,113 889,833 249,000 169,000

Reconciliation between tax expense and accounting profit The reconciliation between tax expense and the product of accounting profit multiplied by the applicable corporate tax rate

for the years ended 31 December 2012 and 2011 are as follows: Group Company 2012 2011 2012 2011 RM RM RM RM

Accounting profit before tax 1,040,331 3,120,055 924,298 636,719

Tax at Malaysian statutory tax rate of 25% (2011: 25%) 260,083 780,014 231,075 159,180 Adjustments: Non-deductible expenses 166,584 182,578 19,740 20,253 Expenses entitled for double deduction for tax purposes - (3,626) - - Income not subject to tax (59,748) (73,893) (1,815) (10,433) Overprovision of income tax in previous years (55,306) (48,819) - - Underprovision of deferred tax in previous years 4,500 53,579 - -

Income tax expense recognised in profit or loss 316,113 889,833 249,000 169,000



11. Earnings per share (a) Basic

Basic earnings per share are calculated by dividing the profit for the year, net of tax, attributable to owners of the parent by the weighted average number of ordinary shares in issued during the financial year.

Group 2012 2011 Profit net of tax attributable to owners of the parent (RM) 729,118 2,225,726 Weighted average number of ordinary shares in issue (units) 80,000,000 80,000,000 Basic earnings per share (sen) 0.91 2.78

(b) Diluted There are no diluted earnings per share as the Company does not have any dilutive potential ordinary shares as at the

year end.

12. Property, plant and equipment

Plant, machinery * Land and and factory Motor ** Other buildings equipment vehicles assets Total Group RM RM RM RM RM Cost At 1 January 2011 17,256,077 17,011,074 4,094,528 2,710,265 41,071,944 Additions 1,460,290 81,446 162,787 174,977 1,879,500 Written off - - - (3,910) (3,910) At 31 December 2011 and 1 January 2012 18,716,367 17,092,520 4,257,315 2,881,332 42,947,534 Additions 2,048,864 180,781 983,476 174,737 3,387,858 Disposals (1,419,345) - (730,815) - (2,150,160) At 31 December 2012 19,345,886 17,273,301 4,509,976 3,056,069 44,185,232 Accumulated depreciation At 1 January 2011 1,994,052 9,529,559 2,261,631 1,645,699 15,430,941 Charge for the year 294,281 1,083,309 469,635 241,655 2,088,880 Written off - - - (3,193) (3,193) At 31 December 2010 and 1 January 2011 2,288,333 10,612,868 2,731,266 1,884,161 17,516,628 Charge for the year 304,586 1,086,428 493,978 202,301 2,087,293 Disposals (50,511) - (643,382) - (693,893) At 31 December 2012 2,542,408 11,699,296 2,581,862 2,086,462 18,910,028 Net carrying amount At 31 December 2011 16,428,034 6,479,652 1,526,049 997,171 25,430,906 At 31 December 2012 16,803,478 5,574,005 1,928,114 969,607 25,275,204

** Other assets comprise office equipment, furniture and fittings, electrical installation, computers and cabin.



12. Property, plant and equipment (continued) * Land and buildings Factory buildings Building- Freehold Leasehold and Hostel inland land extensions buildings progress Total Group RM RM RM RM RM RM Cost At 1 January 2011 2,508,517 1,062,600 10,107,563 183,200 3,394,197 17,256,077 Additions 154,700 - 67,300 - 1,238,290 1,460,290 At 31 December 2011 and 1 January 2012 2,663,217 1,062,600 10,174,863 183,200 4,632,487 18,716,367 Additions 702,473 1,033,416 3,045 - 309,930 2,048,864 Disposals - (1,062,600) (356,745) - - (1,419,345) At 31 December 2012 3,365,690 1,033,416 9,821,163 183,200 4,942,417 19,345,886 Accumulated depreciation At 1 January 2011 - 10,626 1,970,457 12,969 - 1,994,052 Charge for the year - 11,807 278,810 3,664 - 294,281 At 31 December 2011 and 1 January 2012 - 22,433 2,249,267 16,633 - 2,288,333 Charge for the year - 20,777 280,145 3,664 - 304,586 Disposals - (34,240) (16,271) - - (50,511) At 31 December 2012 - 8,970 2,513,141 20,297 - 2,542,408 Net carrying amount At 31 December 2011 2,663,217 1,040,167 7,925,596 166,567 4,632,487 16,428,034 At 31 December 2012 3,365,690 1,024,446 7,308,022 162,903 4,942,417 16,803,478 Capitalisation of borrowing costs Interest expense capitalised during the financial year under building-in-progress amounted to RM130,436 (2011:

RM203,062). Assets held under finance leases During the financial year, the Group acquired property, plant and equipment by mean of: Group 2012 2011 RM RM Finance leases (acquired motor vehicles) 658,000 111,000 Cash outflow 2,729,858 1,768,500 3,387,858 1,879,500



12. Property, plant and equipment (continued)

The carrying amount of property, plant and equipment under finance leases at the reporting date were as follows: Group 2012 2011 RM RM Plant, machinery and factory equipment 746,048 928,048 Motor vehicles 1,481,598 824,143 2,227,646 1,752,191

Leased assets are pledged as security for the related finance lease liabilities (Note 30(c)). Assets pledged as security In addition to assets held under finance leases, the carrying amount of property, plant and equipment of the Group mortgaged

to secure the Group’s bank loans (Note 23) are as follows: Group 2012 2011 RM RM Freehold land 3,210,990 2,508,517 Leasehold land 1,024,446 - Factory buildings 7,307,556 7,581,035 Hostel building 135,603 138,567 Building-in-progress 4,942,417 4,632,487 Plant, machinery and factory equipment 1,425,954 1,595,461 18,046,966 16,456,067

13. Investment properties

Group 2012 2011 RM RM

Cost At 1 January 1,829,431 2,394,633 Disposals - (565,202) At 31 December 1,829,431 1,829,431 Accumulated depreciation At 1 January 316,789 432,475 Charge for the year 27,390 33,156 Disposals - (148,842) At 31 December 344,179 316,789 Net carrying amount 1,485,252 1,512,642



13. Investment properties (continued)

Fair value of investment properties Fair value is arrived at by reference to market evidence of transaction prices similar properties and is performed by registered

independent valuers having an appropriate recognised professional qualification and recent experience in the location and category of the properties being valued. The fair value of the investment properties as at 31 December 2012 is approximately RM2,200,000 (2012: RM1,740,000).

Properties pledged as securities Certain investment properties of the Group amounting to RM1,169,370 (2011: RM1,188,917) are mortgaged to secure bank

loans (Note 23). 14. Land use rights


Cost At 1 January/31 December 2,944,440 2,944,440 Accumulated amortisation At 1 January 401,243 342,122 Charge for the year 59,121 59,121 At 31 December 460,364 401,243 Net carrying amount 2,484,076 2,543,197 Amount to be amortised: - Not later than 1 year 59,121 59,121 - Later than 1 year but not later than 5 years 267,516 267,516 - Later than 5 years 2,157,439 2,216,560 The land use rights are in respect of leasehold land which have been mortgaged to secure bank loans (Note 23). 15. Land held for property development

Group 2012 2011 RM RM At January - - Addition 21,027,539 - At 31 December 21,027,539 -

The land held for property development has been pledged as security for bank loan (Note 23).



16. Development expenditure This represents amount of development expenditure incurred and is stated at cost. 17. Investment in subsidiaries

Company 2012 2011 RM RM Unquoted shares, at cost 36,719,199 36,079,000

Details of the subsidiaries are as follows : Name of Country of Proportion of subsidiaries incorporation Principal activities ownership interest (%) 2012 2011

Hock Heng Granite Malaysia Manufacturing and selling of dimension 100 100 Sdn. Bhd. stones and related products Hock Heng Marketing Malaysia Processing and distribution of dimension 100 100 (KL) Sdn. Bhd. stones and renovation works for homes and offices Hock Heng Marketing Malaysia Processing and trading of dimension stones 100 100 (Southern Region) Sdn. Bhd. PMK Construction & Malaysia Processing and trading of dimension stones 100 100 Design Sdn. Bhd. Hock Heng Stone Malaysia Processing and trading of dimension stones 80 80 (East Coast) Sdn. Bhd. and related services Hock Heng Realty Malaysia Property development 100 100 Sdn. Bhd. (“HHR”) * Dunia Batu Alam Malaysia Property development 60 - Sdn. Bhd. (“DBA”) * * Audited by firms of auditors other than Ernst & Young.

(a) Additional investments On 16 November 2012, HHR subscribed for additional 99,000 ordinary shares of RM1 each in HHR. With the

additional investment, the total issued and paid-up share capital of HHR is RM100,000 comprising 100,000 ordinary shares of RM1 each.

(b) Acquisition of subsidiary On 16 January 2012, the Company has acquired 75,001 ordinary shares (which equivalent to 75% equity interests)

in DBA, a company incorporated in Malaysia, for a total consideration of RM1,500. DBA has an authorised capital of RM500,000 and paid-up capital of RM100,002. On 15 June 2012, the Company disposed off its 15% equity interest, representing 15,000 ordinary shares of RM1.00 each in DBA for a total cash consideration of RM300. The acquisition and disposal resulting in DBA becoming a 60% owned subsidiary of the Company. The acquistion is accounted for using the acquisition method.



17. Investment in subsidiaries (continued) (b) Acquisition of subsidiary (continued)

The fair values of the identifiable liabilities of DBA as at the date of acquisition are as follows: Carrying Fair value amount RM RM Liabilities (7,067) (7,067) (7,067) (7,067) Fair value of net liability (7,067) Less: Non-controlling interests 2,827 (4,240) Goodwill 5,440 Total cost of acquisition 1,200 Analysis of cash fows on acquisition: Cash paid (1,200) Cash and cash equivalents of subsidiary acquired - Net cash outflow (1,200)

From the date of acquisition, DBA has contributed net loss of RM2,800 to the profit before tax of the Group. If the acquisition had taken place on 1 January 2012, DBA will contribute net loss of RM2,800 to the profit before tax of the Group. The goodwill has been written off during the current year.

On 12 November 2012, the Company subscribed for additional 539,999 ordinary shares of RM1 each in DBA. With

the additional investment, the total issued and paid-up share capital of DBA is RM1,000,000 comprising 1,000,000 ordinary shares of RM1 each. The Company’s equity interests in DBA remains unchanged.

18. Inventories


Cost: Raw materials 18,799,451 16,843,621 Work-in-progress 6,338,732 6,730,623 Finished goods 1,599,773 1,822,258 26,737,956 25,396,502



19. Trade and other receivables

Group Company 2012 2011 2012 2011 RM RM RM RM Trade receivables Third parties 17,666,493 17,185,267 - - Retention sums on costruction contract (Note 21) 3,071,796 2,624,011 - - Amount due from a company in which certain directors have interests 491,112 - - -

21,229,401 19,809,278 - - Less: Allowance for impairment - Third parties (641,117) (404,812) - -

Trade receivables, net 20,588,284 19,404,466 - -

Other receivables Amounts due from subsidiaries - - 4,808,828 1,966,456 Sundry receivables 190,882 27,824 - - Deposits 303,051 363,076 - -

493,933 390,900 4,808,828 1,966,456

21,082,217 19,795,366 4,808,828 1,966,456

Total trade and other receivables 21,082,217 19,795,366 4,808,828 1,966,456 Add: Cash and bank balances (Note 22) 3,307,157 4,664,246 26,038 2,135,191

Total loans and receivables 24,389,374 24,459,612 4,834,866 4,101,647

(a) Trade receivables

Trade receivables are non-interest bearing and are generally on 30 to 90 (2011: 30 to 90) day terms. Other credit terms are assessed and approved on a case-by-case basis. They are recognised at their original invoice amounts which represent their fair values on initial recognition.

Ageing analysis of trade receivables The ageing analysis of the Group’s trade receivables is as follows:

Group 2012 2011 RM RM Neither past due nor impaired 9,104,831 8,073,008 1 to 30 days past due not impaired 504,107 468,661 31 to 60 days past due not impaired 690,176 1,262,858 61 to 90 days past due not impaired 810,093 1,981,651 90 to 120 days past due not impaired 260,515 1,056,050 More than 121 days past due not impaired 4,857,493 2,137,752 7,122,384 6,906,972 Impaired 5,002,186 4,829,298 21,229,401 19,809,278



19. Trade and other receivables (continued)

(a) Trade receivables (continued)

Receivables that are neither past due nor impaired

Trade and other receivables that are neither past due nor impaired are creditworthy debtors with good payment records with the Group.

None of the Group’s trade receivables that are neither past due nor impaired have been renegotiated during the

financial year.

Receivables that are past due but not impaired The Group has trade receivables amounting to RM7,122,384 (2011: RM6,906,972) that are past due at the reporting

date but not impaired. These receivables are active accounts which the management considers to be recoverable.

Receivables that are impaired The Group’s trade receivables that are individually impaired at the reporting date and the movement of the allowance

accounts used to record the impairment are as follows: Group 2012 2011 RM RM Trade receivables - nominal amounts 5,002,186 4,829,298 Less: Allowance for impairment (641,117) (404,812) 4,361,069 4,424,486

Movement in allowance accounts: At 1 January 404,812 307,640 Charge for the year 260,805 97,172 Reversal of impairment loss (24,500) - At 31 December 641,117 404,812

Trade receivables that are individually determined to be impaired at the reporting date relate to debtors that are in significant financial difficulties and/or have defaulted on payments. These receivables are not secured by any collateral or credit enhancement.

The management is in the opinion that other than amounts provided for impairment loss, no further impairment is

required as these receivables include claims pending for finalisation and retention sums from contract customers which are time consuming process and common in the industry. These also include a contract customer whom has undertaken creditor repayment scheme in settling its debts.

(b) Related party balances Amounts due from subsidiaries at the reporting date are unsecured, non-interest bearing and are repayable upon

demand except for an amount of RM4,808,828 (2011: RM1,705,621) which bore interest rate of 1% (2011: 1%) per annum.



20. Other current assets

Group 2012 2011 RM RM Prepaid operating expenses 619,147 589,351 Deposit for purchase of property, plant and equipment 158,475 480,749 Deposits paid to raw material suppliers 356,536 538,299 Amount due from customers on contracts (Note 21) 3,879,011 2,951,192 5,013,169 4,559,591

21. Gross amount due from/(to) customers on contracts

Group 2012 2011 RM RM Construction contract costs incurred to date 23,068,834 22,326,876 Attributable profits 5,998,830 4,923,865 29,067,664 27,250,741 Less: Progress billings (25,344,591) (24,570,734) 3,723,073 2,680,007 Presented as: Gross amount due from customers for contract work (Note 20) 3,879,011 2,951,192 Gross amount due to customers for contract work (Note 25) (155,938) (271,185) 3,723,073 2,680,007 Retention sums on construction contract included in trade receivables (Note 19) 3,071,796 2,624,011

22. Cash and bank balances

Group Company 2012 2011 2012 2011 RM RM RM RM Cash at banks and on hand 1,901,673 3,101,302 26,038 2,135,191 Short term deposits with licensed banks 1,405,484 1,562,944 - -

Cash and bank balances 3,307,157 4,664,246 26,038 2,135,191 Less: Bank overdrafts (Note 23) (2,552,349) (2,469,530) - -

Cash and cash equivalents 754,808 2,194,716 26,038 2,135,191

Cash and bank balances earn interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods of between 1 to 12 months (2011: 1 to 12 months) depending on the immediate cash requirements of the Group, and earn interests at the respective short-term deposit rates. The weighted average effective interest rates as at the reporting date for the Group was 3.12% (2011: 2.98%) per annum.

All the short term deposits with licensed banks of the Group are pledged as securities for borrowings (Note 23).



23. Loans and borrowings

Group 2012 2011 Maturity RM RM

Current Secured: Obligations under finance leases (Note 30(c)) 2013 432,303 318,448 Bank overdrafts (Note 22) On demand 2,552,349 2,469,530 Bankers’ acceptances 2013 11,692,000 9,643,000 Bank loans: - RM loan at BLR - 0.75% per annum 2013 59,140 62,488 - RM loan at BLR - 1.50% per annum 2013 5,762 5,485 - RM loan at BFR - 1.80% per annum 2013 320,160 116,459 - RM loan at BFR - 2.00% per annum 2013 244,559 126,942 - RM loan at BFR - 2.10% per annum 2013 65,176 - - RM loan at BLR + 0.30% per annum 2013 45,581 44,613 - RM loan at BFR + 0.50% per annum 2013 625,715 - - RM loan at BLR + 0.80% per annum 2013 9,817 10,093 - 2.49% per annum fixed rate RM bank loan 2013 214,383 202,604 16,266,945 12,999,662

Non-current Secured: Obligations under finance leases (Note 30(c)) 2014 - 2017 761,833 605,773 Bank loans: - RM loan at BLR - 0.75% per annum 2014 - 2026 1,256,570 1,300,493 - RM loan at BLR - 1.50% per annum 2014 - 2023 73,044 78,640 - RM loan at BFR - 1.80% per annum 2014 - 2033 3,832,278 4,180,223 - RM loan at BFR - 2.00% per annum 2014 - 2026 2,238,807 2,487,637 - RM loan at BFR - 2.10% per annum 2014 - 2022 662,228 - - RM loan at BLR + 0.30% per annum 2014 - 2028 1,301,756 1,316,320 - RM loan at BFR + 0.50% per annum 2014 - 2027 14,931,707 - - RM loan at BLR + 0.80% per annum 2014 - 2026 235,420 241,558 - 2.49% per annum fixed rate RM bank loan 2014 - 2015 361,212 573,821 25,654,855 10,784,465

Total loans and borrowings 41,921,800 23,784,127

The remaining maturities of the loans and borrowings as at 31 December 2012 and 31 December 2011 are as follows: Group 2012 2011 RM RM On demand or within 1 year 16,266,945 12,999,662 More than 1 year and less than 2 years 2,216,458 899,471 More than 2 years and less than 5 years 5,028,467 1,949,739 5 years or more 18,409,930 7,935,255 41,921,800 23,784,127



23. Loans and borrowings (continued) Obligations under finance leases

These obligations are secured by a charge over the leased assets (Note 12). The average discount rate implicit in the leases is 3.06% (2011: 3.36%) per annum.

Bank overdrafts

Bank overdrafts are denominated in RM, bear interest range from BLR + 0.80% per annum to BLR + 1.75% per annum (2011: BLR + 0.80% per annum to BLR + 1.75% per annum).

Bankers’ acceptance

These are used to finance purchases of the Group denominated in RM and are short term in nature. The weighted average effective interest rate is 2.15% (2011: 3.20%) per annum.

RM bank loans

The loans are secured by first legal charge over certain assets of the Group as disclosed in Note 12, Note 13, Note 14, Note 15 and Note 22 respectively.

24. Trade and other payables


Trade payables Third parties 6,920,687 5,927,862 - -

Other payables Amounts due to subsidiaries - - 1,522,034 - Sundry payables 5,943,659 1,979,366 22,503 58,261 Accrued operating expenses 613,897 548,693 19,800 17,800

6,557,556 2,528,059 1,564,337 76,061

13,478,243 8,455,921 1,564,337 76,061

Total trade and other payables 13,478,243 8,455,921 1,564,337 76,061 Add: Loans and borrowings (Note 23) 41,921,800 23,784,127 - -

Total financial liabilities carried at amortised cost 55,400,043 32,240,048 1,564,337 76,061

(a) Trade payables These amounts are non-interest bearing. Trade payables are normally settled on 30 to 90 (2011: 30 to 90) day terms. (b) Other payables These amounts are non-interest bearing. Other payables are normally settled on an average of six months (2011: six

months). (c) Amount due to related companies The amounts due to subsidiaries at the reporting date are unsecured, non-interest bearing and are repayable on

demand except for an amount of RM1,515,146 (2011: Nil) which bore interest rate of 1% (2011: Nil) per annum.



25. Other current liability

Group 2012 2011 RM RM Gross amount due to customers on contracts (Note 21) 155,938 271,185

26. Deferred tax liabilities

Group 2012 2011 RM RM At 1 January 1,150,050 1,412,398 Recognised in profit or loss (Note 10) (286,581) (262,348) At 31 December 863,469 1,150,050

The components and movements of deferred tax liabilities/(assets) during the financial year are as follows: Unutilised tax losses and unabsorbed Property, capital plant and allowances Others equipment Total RM RM RM RM At 1 January 2011 (39,313) (199,601) 1,651,312 1,412,398 Recognised in profit or loss 11,232 (194,349) (79,231) (262,348) At 31 December 2011 and 1 January 2012 (28,081) (393,950) 1,572,081 1,150,050 Recognised in profit or loss 12,791 (157,281) (142,091) (286,581) At 31 December 2012 (15,290) (551,231) 1,429,990 863,469

27. Share capital

Group and Company Number of ordinary shares of RM0.50 each Amount 2012 2011 2012 2011 RM RM Authorised 200,000,000 200,000,000 100,000,000 100,000,000 Issued and fully paid 80,000,000 80,000,000 40,000,000 40,000,000

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions and rank equally with regard to the Company residual assets.



28. Retained earnings Prior to the year of assessment 2008, Malaysian companies adopted the full imputation system. In accordance with the

Finance Act 2007 which was gazetted on 28 December 2007, companies shall not be entitled to deduct tax on dividends paid, credited or distributed to its shareholders, and such dividends will be exempted from tax in the hands of the shareholders (“single tier system”). However, there is a transitional period of six years, expiring on 31 December 2013, to allow companies to pay franked dividends to their shareholders under limited circumstances. Companies also have an irrevocable option to disregard the 108 balance and opt to pay dividends under the single tier system. The change in the tax legislation also provides for the 108 balance to be locked-in as at 31 December 2007 in accordance with Section 39 of the Finance Act 2007.

The Company has no 108 balance since previous year. Therefore, the Company may distribute dividends out of its entire retained earnings as at 31 December 2012 and 2011 under the single tier system.

29. Related party disclosures (a) Sale and purchase of goods and services

In addition to the related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and the Company and related parties took place at terms agreed between the parties during the financial year:

Companies in which certain directors have interests: (i) EMP Design Sdn. Bhd. (ii) LBS Realty Sdn. Bhd.

Subsidiaries: (i) Hock Heng Granite Sdn. Bhd. (ii) Hock Heng Marketing (KL) Sdn. Bhd. (iii) Hock Heng Marketing (Southern Region) Sdn. Bhd. (iv) PMK Construction & Design Sdn. Bhd. (v) Hock Heng Relaty Sdn. Bhd. (vi) Dunia Batu Alam Sdn Bhd


Transactions with companies in which certain directors have interests Sale of dimension stones to 2,553,399 2,347,726 Rental paid to 84,000 84,000 Company 2012 2011 RM RM

Transactions with subsidiaries Dividend income received from 1,080,000 740,000 Interest charge to 30,132 37,167 Interest charge by 2,546 - Fund transferred to 9,691,867 - Fund transferred from 8,345,227 2,892,398 Payment on behalf by 47,000 525,713

(b) Compensation of key management personnel

The remuneration of key management personnel comprising solely remuneration of the executive directors are disclosed in Note 9.



30. Commitments (a) Capital commitments

Capital expenditure as at the reporting date is as follows:

Group 2012 2011 RM RM Approved and contracted for - Property, plant and equipment 93,350 1,486,561 Approved but not contracted for - Property, plant and equipment 2,000,000 - 2,093,350 1,486,561

(b) Operating lease commitments - as lessee

In addition to the land use rights disclosed in Note 14, the Group has entered into non-cancellable operating lease agreements for the use of land and buildings. These leases have an average tenure of between two and five years. There are no restrictions placed upon the Group by entering into these leases.

Minimum lease payments, including amortisation of land use rights recognised in profit or loss for the financial year

ended 31 December 2012 amounted to RM171,163 (2011: RM192,251).

Future minimum rentals payables under non-cancellable operating leases (excluding land use rights) at the reporting date are as follows:

Group 2012 2011 RM RM Not later than 1 year 84,000 88,025 Later than 1 year but not later than 5 years 77,000 245,000 161,000 333,025

(c) Finance lease commitments

The Company has finance leases for certain items of motor vehicles and plant and machinery (Note 12). These leases do not have terms of renewal, but have purchase options at nominal values at the end of the lease term.

Future minimum lease payments under finance leases together with the present value of the net minimum lease

payments are as follows: Group 2012 2011 RM RM Minimum lease payments: Not later than 1 year 482,817 365,844 Later than 1 year but not later than 2 years 390,723 327,183 Later than 2 years but not later than 5 years 424,420 321,009 Total minimum lease payments 1,297,960 1,014,036 Less: Amounts representing finance charges (103,824) (89,815) Present value of minimum lease payments 1,194,136 924,221



30. Commitments (continued)

(c) Finance lease commitments (continued)


Present value of payments: Not later than 1 year 432,303 318,448 Later than 1 year but not later than 2 years 360,283 299,567 Later than 2 years but not later than 5 years 401,550 306,206 Present value of minimum lease payments 1,194,136 924,221 Less: Amount due within 12 months (Note 23) (432,303) (318,448) Amount due after 12 months (Note 23) 761,833 605,773

31. Fair value of financial instruments Financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair

value The following are classes of financial instruments that are not carried at fair value and whose carrying amounts are reasonable

approximation of fair value: Note Trade and other receivables 19 Loans and borrowings 23 Trade and other payables 24 The carrying amounts of these financial assets and liabilities are reasonable approximation of fair values, either due to their

short-term nature or that they are floating rate instruments that are re-priced to market interest rates on or near the reporting date.

The carrying amounts of the current portion of loans and borrowings are reasonable approximations of fair values due to the

insignificant impact of discounting. The fair values of current loans and borrowings are estimated by discounting expected future cash flows at market incremental

lending rate for similar types of lending, borrowing or leasing arrangements at the reporting date. 32. Financial risk management objectives and policies The Group and the Company are exposed to financial risks arising from their operations and the use of financial instruments.

The key financial risks include credit risk, liquidity risk, interest rate risk and foreign currency risk. The following sections provide details regarding the Group and the Company’s exposure to the above-mentioned financial

risks and the objectives, policies and processes for the management of these risks.



32. Financial risk management objectives and policies (continued) (a) Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s and the Company’s exposure to credit risk arises primarily from trade and other receivables. For other financial assets (including cash and bank balances), the Group and the Company minimise credit risk by dealing exclusively with high credit rating counterparties.

The Group’s objective is to seek continual revenue growth while minimising losses incurred due to increased credit

risk exposure. The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

Exposure to credit risk At the reporting date, the Group’s maximum exposure to credit risk is represented by the carrying amount of each class

of financial assets recognised in the statements of financial position, with positive fair values. Information regarding credit risk management for trade and other receivables is disclosed in Note 19. Credit risk concentration profile At the reporting date, approximately:

- all of the Company receivables was balance with subsidiaries. The directors believe that this will not create

significant problems for the Company in view of the fact that the directors have direct participation and influential power in the management of these counterparties.

Financial assets that are neither past due nor impaired Information regarding trade and other receivables that are neither past due nor impaired is disclosed in Note 19. Financial assets that are either past due or impaired Information regarding trade and other receivables that are either past due or impaired is disclosed in Note 19. (b) Liquidity risk Liquidity risk is the risk that the Group and the Company will encounter difficulty in meeting financial obligations

due to shortage of funds. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities.

The Group manages its debt maturity profile, operating cash flows and the availability of funding so as to ensure that

refinancing, repayment and funding needs are met. As part of its overall liquidity management, the Group maintains sufficient levels of cash or cash convertible investments to meet its working capital requirements. In addition, the Group strives to maintain available banking facilities at a reasonable level to its overall debt position. As far as possible, the Group raises committed funding from financial institutions and balances its portfolio with some short term funding so as to achieve overall cost effectiveness.

The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility

through the use of stand-by credit facilities and collection from customers.



32. Financial risk management objectives and policies (continued) (b) Liquidity risk (continued)

Analysis of financial instruments by remaining contractual maturities On demand or within One to Over five one year five years years Total RM RM RM RM As at 31 December 2012 Group Trade and other payables 13,478,243 - - 13,478,243 Loans and borrowings 17,115,155 11,911,301 24,345,874 53,372,330

Total undiscounted financial liabilities 30,593,398 11,911,301 24,345,874 66,850,573 Company Trade and other payables 1,564,337 - - 1,564,337

Total undiscounted financial liabilities 1,564,337 - - 1,564,337 As at 31 December 2011 Group Trade and other payables 8,455,921 - - 8,455,921 Loans and borrowings 13,593,481 4,669,837 10,801,391 29,064,709

Total undiscounted financial liabilities 22,049,402 4,669,837 10,801,391 37,520,630 Company Trade and other payables 76,061 - - 76,061

Total undiscounted financial liabilities 76,061 - - 76,061

(c) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market interest rates.

The Group’s interest rate risk arises primarily from interest-bearing borrowings. The Group manages its interest rate

exposure by maintaining a prudent mix of fixed and floating rate borrowings and actively review its debt portfolio taking into account the investment holding period and nature of its assets.

These information on maturity dates and effective interest rates of financial assets and liabilities are disclosed in their

respective notes.



32. Financial risk management objectives and policies (continued) (c) Interest rate risk (continued)

Sensitivity analysis for interest rate risk Based on the utilisation of floating rate loans and borrowings throughout the reporting period, if interest rates had been

10 basis point lower (or higher), with all other variables held constant, the Group’s profit before tax would have been RM21,000 (2011: RM20,000) higher (or lower), arising mainly as a result of lower (or higher) interest expense that would have been incurred. The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment.

(d) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because

of changes in foreign exchange rates. The Group is exposed to transactional currency risk primarily through purchases that are denominated in foreign

currencies. The currency giving rise to this risk is primarily the United States Dollars (“USD”). Approximately 10% (2011: 12%) of the Group’s trade payables are denominated in USD. Sensitivity analysis for foreign currency risk The following table illustrates the hypothetical sensitivity of the Group’s profit before tax to a reasonably possible

change in the USD exchange rates at the reporting date against RM, assuming all other variables remain unchanged. Increase/(decrease) in profit before tax 2012 2011 RM RM Group USD strengthened by 5% (33,000) (34,000) USD weakened by 5% 33,000 34,000

33. Capital management The primary objective of the Group’s capital management is to ensure that it maintains a healthy capital ratios in order to

support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To

maintain or adjust the capital structure, the Group may adjust the dividend payments to shareholders. No changes were made in the objectives, policies or processes during the years ended 31 December 2012 and 31 December 2011.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group

includes within net debt, loans and borrowings, trade and other payables, less cash and bank balances. Capital includes equity attributable to the owners of the parent.



33. Capital management (continued)

Group Company 2012 2011 2012 2011 Note RM RM RM RM Loans and borrowings 23 41,921,800 23,784,127 - Trade and other payables 24 13,478,243 8,455,921 1,564,337 Less: - Cash and bank balances 22 (3,307,157) (4,664,246) (26,038)

Netdebt 52,092,886 27,575,802 1,538,299

Equity attributable to owners of the parent 50,284,285 50,355,167 40,013,384

Totalcapital 50,284,285 50,355,167 40,013,384

Capital and net debt 102,377,171 77,930,969 41,551,683

Gearing ratio 51% 35% 4% #

# As at the reporting date of last financial year, the Company has zero gearings as the cash and bank balances exceeded

the net debt. 34. Segment information For management purposes, the Group is organised into business units based on their products and services, and has three

reportable operating segments as follows:

(i) Sales of goods - manufacture and sales of dimension stones and related products and is completed within 6 months. (ii) Construction - supply and installation of dimension stones and related products for projects secured and is completed

over a period of more than 6 months. (iii) Others - property development and investment holding.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which, in certain respects as explained in the table below, is measured differently from operating profit or loss in the consolidated financial statements. Group financing (including finance costs) and income taxes are managed on a group basis and are not allocated to operating segments.



34. Segment information (continued) Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third

parties.

Per consolidated Sales of financial goods Construction Others Eliminations Notes statements RM RM RM RM RM 2012 Revenue: External customers 28,095,063 6,622,616 - - 34,717,679 Inter-segment 19,929,033 - 1,080,000 (21,009,033) A -

Total revenue 48,024,096 6,622,616 1,080,000 (21,009,033) 34,717,679 Results: Interest income 43,766 660 7,257 - 51,683 Finance costs 1,327,071 23,831 - - 1,350,902 Depreciation and amortisation 2,010,311 163,493 - - 2,173,804 Other non-cash expenses 222,575 38,230 - - 260,805 Segment profit 1,643,731 217,958 883,357 (1,704,715) B 1,040,331 Assets: Additions to non-current asstes 2,530,888 856,970 21,027,539 - 24,415,397 Segment assets 72,233,644 13,659,115 21,231,292 - 107,124,051 Segment liabilities 38,326,242 155,938 17,947,343 - 56,429,523 2011 Revenue: External customers 26,252,187 14,049,369 - - 40,301,556 Inter-segment 28,497,259 - 740,000 (29,237,259) A -

Total revenue 54,749,446 14,049,369 740,000 (29,237,259) 40,301,556 Results: Interest income 51,160 2,866 41,732 - 95,758 Finance costs 1,149,203 12,702 - - 1,161,905 Depreciation and amortisation 2,046,100 135,057 - - 2,181,157 Other non-cash expenses 4,864 92,308 - - 97,172 Segment profit 3,542,552 460,577 634,319 (1,517,393) B 3,120,055 Assets: Additions to non-current asstes 1,730,686 148,814 - - 1,879,500 Segment assets 69,236,442 12,831,317 2,265,291 - 84,333,050 Segment liabilities 33,572,666 271,185 76,061 - 33,919,912



34. Segment information (continued)

A : Inter-segment revenues are eliminated on consolidation.

B : Profit from inter-segment sales are deducted from segment profit to arrive at profit before tax presented in the consolidated statement of comprehensive income.

Geographical information Geographical information is not prepared as the operations of the Group are predominantly carried out in Malaysia. Information about a major customer In previous financial year, revenue from one major customer amount to RM6,180,000 arising from sales by the construction

segment. 35. Dividends

Group and Company 2012 2011 RM RM

Recognised during the financial year: Dividend on ordinary shares: - Final tax exempt (single-tier) dividend for 2011: 1 sen per share (2010: 1 sen per share) 800,000 800,000 Proposed but not recognised as a liability as at 31 December Dividends on ordinary shares, subject to shareholders’ approval at the AGM: - Final tax exempt (single-tier) dividends for 2011: 1 sen per share - 800,000

The directors do not recommend any dividend to be paid in respect of the current financial year. 36. Authorisation of financial statements for issue The financial statements for the year ended 31 December 2012 were authorised for issue in accordance with a resolution

of the directors on 18 April 2013.


Supplementary Information

37. Supplementary information – Breakdown of realised and unrealised retained earnings The breakdown of the retained earnings of the Group and of the Company into realised and unrealised earnings is presented

in accordance with the directive issued by Bursa Malaysia Securities Berhad dated 25 March 2010 and prepared in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants.


Total retained earnings of the Company and its subsidiaries: - Realised 12,183,340 12,506,940 13,384 138,086 - Unrealised (1,370,005) (1,564,233) - -

10,813,335 10,942,707 13,384 138,086 Less: Consolidation adjustments (529,050) (587,540) - -

Retained earnings of the Group/Company 10,284,285 10,355,167 13,384 138,086


List of Properties

The landed properties owned by the Group as at 31 December 2012 are set out below: Audited Net Carrying amounts Approximate as at Description of Approximate Land Area/ 31 December Date of Property/ age of Building/ Built-up Area 2012No. Address Location/Title Acquisition Existing use Tenure (square meters) RM

1. Lot 197, Jalan PM 707 (previously 19/03/1988 Double storey 17 years/ 11,087/ 2,490 Sungai Putat, Batu knownasHSM805 office block with Leasehold for 88 Berendam, 75350 andoriginallyheld a single storey years expiring on Melaka underPM152Lot197) factory/ head 5 September 2054 office cum main Lot 6756, Mukim Batu manufacturing Berendam, District of plant Melaka Tengah, State of Melaka

PM 708 (previously 19/03/1988 Single storey 17 years/ 7,845/ 6,895 knownasHSM806 warehouse/ Leasehold for 88 andoriginallyheld warehouse for years expiring on underPM152) storing goods 5 September 2054 6,505,426 Lot 6757, Mukim Batu Berendam, District of Melaka Tengah, State of Melaka

GM 1031 (previously 03/02/2000 Double storey 6 years/ 12,811/ 4,706 knownasHSM1350 warehouse/ Freehold PT13140and warehouse for originallyheldunder storing goods GM71) Lot 13189, Mukim Batu Berendam, District of Melaka Tengah, State of Melaka

2. Lot 197, Jalan GM 650 (previously 03/02/2000 Vacant land/ Not applicable/ 27,187 1,007,107 Sungai Putat, Batu knownasGM70) stockyard Freehold Berendam, 75350 Melaka Lot 9533, Mukim Batu Berendam, District of Melaka Tengah, State of Melaka

3. PTD 8436, Mukim H.S. (M): 1157 14/12/2011 Vacant land Not applicable 12,141 154,700 of Tangkak, PTD 8436, Mukim Freehold Daerah Muar, Tangkak, District of Johor Ledang, State of Johor


List of Properties (Cont’d)

Audited Net Carrying amounts Approximate as at Description of Approximate Land Area/ 31 December Date of Property/ age of Building/ Built-up Area 2012No. Address Location/Title Acquisition Existing use Tenure (square meters) RM

4. Lot 7669, Mukim Geran 218661 27/12/1995 Vacant land Not applicable/ 20,234 of Tangkak, (previouslyknown Freehold Daerah Muar, asGeran22742) Johor Lot 7669, Mukim Tangkak, District of Ledang, State of Johor

Lot 7670, Mukim Geran 218662 27/12/1995 Vacant land Not applicable/ 20,259 of Tangkak, (previouslyknown Freehold Daerah Muar, asGeran22743) Johor 182,450 Lot 7670, Mukim Tangkak, District of Ledang, State of Johor

Lot 7671, Mukim Geran 218666 27/12/1995 Vacant land Not applicable/ 20,259 of Tangkak, (previouslyknown Freehold Daerah Muar, asGeran22744) Johor Lot 7671, Mukim Tangkak, District of Ledang, State of Johor

5. Lot 45, Rainforest GM 3983 (previously 29/07/2006 Vacant land Not applicable/ 891 459,949 Sanctury Genting, knownasHSM5263) Freehold Sempah Bentong, Pahang Lot 19730, Mukim Bentong, District of Bentong, State of Pahang

6. No. 64 & 64A, Geran 110212 15/09/2000 Double-storey 12 years/ 156/ 312 186,238 Taman Dato Raja (previouslyknown terrace Freehold Md Hanifah, Jalan asHSD114809) shophouse/ Rasah, 70300 tenanted to a Seremban, Negeri Lot 20435, Bandar third party Sembilan Seremban, District of Seremban, State of Negeri Sembilan

7. B 56 (B 5F), Blk ‘B’ Master title no. Geran 18/04/1998 Condominium/ 14 years/ 93 177,430 Palais Le 77439 (previouslyheld vacant Freehold Renaissance underHSD89511) Condominium, Jalan Berlian 8, Lot 1468, Pekan Bukit Bukit Kaya, 70200 Kepayang, District of Seremban, Negeri Seremban, State of Sembilan Negeri Sembilan




8. HSD 109736, PT HSD 109736, PT No. 09/12/2003 Building under Leasehold for 60 8,090/ 4,248 7,013,202 No. 13, Pekan 13, Pekan Subang, construction years expiring on Subang, Daerah District of Petaling, 9 April 2057 Petaling, Selangor Selangor

9. 19-2, Jalan 2/1A, Master title no. PN 13/08/2003 Office lot within 14 years/ 107 116,000 Taman Kepong 29645 (previously a three-storey Leasehold for 99 Indah, 52100 heldunderHSD75359) shop office/ years expiring on Kuala Lumpur vacant 22 July 2072 Lot 49691, Mukim Batu, District of Wilayah Persekutuan Kuala Lumpur, State of Wilayah Persekutuan Kuala Lumpur

10. No. 33, Jalan P9G HSD 198, PT 317, 21/05/1999 Double-storey 12 years/ 464/ 164 345,764 1/5, Presint 9, Pekan Presint 9, terrace house/ Freehold Putrajaya, 62250 Bandar Putrajaya, tenanted to a Wilayah District of Putrajaya, third party Persekutuan State of Wilayah Putrajaya Persekutuan Putrajaya

11. Unit No. 08, Block Geran 34042/ M3/ 3/ 13/08/2003 Flat/ vacant 21 years/ 48 44,000 H, 2nd Floor, 152 Freehold Tanming Jaya, Balakong, 43300 Lot 19704, Mukim Selangor Kajang, District of Hulu Langat, State of Selangor

12. Unit SB-08-02, 8th Master title No. Geran 13/08/2003 Medium cost 11 years/ 105 92,640 Floor, Kenangan No. 53455, Lot 40808 apartment/ staff Freehold View Apartment, (previouslyknownas quarters Taman Bukit GrantNo.24326, Kenangan, 43000 Lot2988) Kajang, Selangor Bandar Kajang District of Ulu Langat, State of Selangor

13. Unit No. 128D/ Geran 75319/ M1-D/ 3/ 24/02/2004 Office lot/ vacant 14 years/ 79 63,231 33-2B, Block D, 182 Freehold Seremban 2, 70300 Seremban, Lot 21776, Mukim Negeri Sembilan Rasah, District of Seremban, State of Negeri Sembilan




14. No. 20, Jalan Geran 250614 02/08/2007 Double storey 5 years/ 3,013/ 944 2,021,672 Plentong 8, (previouslyknownas office block with Freehold Sri Plentong, HSD212302) single storey Industrial Park, factory/ Sales 81750 Masai, Lot 182721 office cum Johor (previouslyknownas shawroom and PTD111402), Mukim secondary Plentong, District of processing plant Johor Bahru, State with warehouse of Johor

15. No. 10, Jalan PN 10110 (previously 19/04/2004 Double storey 9 years/ 972/ 502 540,475 Industri Semambu knownasHSD18738) office block with Leasehold for 66 9/3, Cocopalm single storey years expiring on Industrial Park, Lot 50611, Mukim factory/ Sales 20 November 25300 Kuantan, Kuala Kuantan, office cum 2050 Pahang District of Kuantan, shawroom and State of Pahang secondary processing plant with warehouse

16. Lot 2364, Mukim GM 595, Lot 2364, 22/11/2011 Vacant land Not applicable/ 1,310 702,473 Bukit Baru, Daerah Mukim Bukit Baru, Freehold Melaka Tengah, Daerah Melaka Melaka Tengah, Melaka.

17. Lot 8339 and Lot PN 49595, Lot 8339 09/09/2011 Vacant land Not applicable/ 3,342 1,024,446 8340, Mukim and PN 49596, Leasehold for 99 Krubong, Daerah Lot 8340, Mukim years expiring on Melaka Tengah, Krubong, Daerah 24 November Melaka Melaka Tengah, 2107 Melaka

18. No. 27, Jalan SS9, Geran 30848 02/07/2008 Double-storey 14 years/ 208/ 146 135,603 Taman Seri (previouslyknown terrace house/ Freehold Selendang, Batu asHSD36672) vacant Berendam, 75350 Melaka Lot 9223 (previously knownasPT6619), Mukim Batu Berendam, District of Melaka Tengah, State of Melaka

19. Lot 9195, Mukim GRN 54223, 23/08/2012 Development Not applicable/ 164,095 21,027,539 Durian Tunggal, Lot 9195, Mukim land Freehold Daerah Alor Gajah, Durian Tunggal, Melaka Daerah Alor Gajah, Melaka


Analysis of Shareholdings As at 8 May 2013

Authorised share capital : RM100,000,000Issued and fully paid up capital : RM40,000,000Class of shares : Ordinary shares of RM0.50 eachVoting rights : One (1) vote per ordinary share

1. Distribution of Shareholdings No. of No. of Size of shareholdings holders % shares % Less than 100 shares 3 0.51 100 - 100 to 1,000 shares 56 9.57 41,200 0.05 1,001 to 10,000 shares 260 44.45 1,719,300 2.15 10,001 to 100,000 shares 211 36.07 6,999,300 8.75 100,001 to less than 5% of issued shares 53 9.06 30,920,100 38.65 5% and above of issued shares 2 0.34 40,320,000 50.40

Total 585 100.00 80,000,000 100.00 2. List of Substantial Shareholders The substantial shareholders of Hock Heng based on the Register of Substantial Shareholders of the Company and their

respective shareholdings are as follows: Direct interest Indirect interest No. of No. of Substantial Shareholders shares % shares % Jasa Maju Jaya Sdn. Bhd. 36,000,000 45.00 - - Low Kim Hock 4,320,000 5.40 36,040,000 ** 45.05

** Deemed interest by virtue of his substantial shareholdings in Jasa Maju Jaya Sdn. Bhd. and the direct interest of his son, Low Yong Seng’s shareholding in Hock Heng pursuant to Section 6A of the Companies Act, 1965.

3. List of Directors’ Shareholdings The Directors’ shareholdings of Hock Heng based on the Register of Directors’ Shareholdings of the Company are as

follows: Direct interest Indirect interest No. of No. of Directors shares % shares % Low Kim Hock 4,320,000 5.40 36,040,000 ** 45.05 Low Kim Joo 2,592,000 3.24 36,000,000 * 45.00 Low Kim Chung 2,304,000 2.88 36,000,000 * 45.00 Low Yong Seng 40,000 0.05 - - Chong Peng Khang - - - - Yap Koon Roy 30,000 0.04 - - Peter Yong Kuen Fook 30,000 0.04 - -

** Deemed interest by virtue of his substantial shareholdings in Jasa Maju Jaya Sdn. Bhd. and the direct interest of his son, Low Yong Seng’s shareholding in Hock Heng pursuant to Section 6A of the Companies Act, 1965.

* Deemed interest by virtue of their substantial shareholdings in Jasa Maju Jaya Sdn. Bhd. pursuant to Section 6A of the Companies

Act, 1965.


Analysis of Shareholdings (Cont’d)As at 8 May 2013

4. Thirty (30) Largest Shareholders No. Shareholders No. of shares % 1. Jasa Maju Jaya Sdn. Bhd. 36,000,000 45.00 2. Low Kim Hock 4,320,000 5.40 3. Low Kim Joo 2,592,000 3.24 4. Low Kim Chung 2,304,000 2.88 5. Low Kim Ong 2,304,000 2.88 6. Ab. Rauf Bin Yusoh 2,000,000 2.50 7. Low Jin Guat 1,570,700 1.96 8. Low Jin Hoon 1,536,000 1.92 9. Low Kim Chye 1,071,000 1.34 10. Low Kim Siew 1,016,000 1.27 11. Jiang Guotian 920,000 1.15 12. Tai Teck Keem 910,000 1.14 13. Bee Ping Chon @ Mah Peng Choon 800,800 1.00 14. Teo Yong Swee 800,000 1.00 15. Low Kim Choon 770,000 0.96 16. Liow Hock Siew 690,000 0.86 17. Wang Chengyu 660,000 0.83 18. Mohamad Salleh Yong Bin Abdullah 660,000 0.83 19. Low Jin Kuan 590,300 0.74 20. Lim Chian Thye 460,000 0.57 21. Lau Tee Ping 460,000 0.57 22. Low Han Wah 460,000 0.57 23. Lim Sek Cheon 460,000 0.57 24. Tan See Teck 460,000 0.57 25. Chan Kin Loong 460,000 0.57 26. Lai Meng Chee 460,000 0.57 27. Yang Weiyuan 460,000 0.57 28. Lim Buck Poh 410,000 0.51 29. E Yau Keng 310,000 0.39 30. Abd. Halim Bin Abd. Hamid 300,000 0.38


Notice of Annual General Meeting

1. To receive the Audited Financial Statements for the financial year ended 31 December 2012 together with the Reports of the Directors and the Auditors thereon.

2. To approve the payment of Directors’ Fees for the financial year ended 31 December 2012. 3. To re-elect the following Directors who retire pursuant to Article 96 of the Company’s Articles

of Association and being eligible, have offered themselves for re-election:-

• Peter Yong Kuen Fook • Yap Koon Roy 4. To appoint Auditors and authorise the Directors to fix their remuneration.

Notice of Nomination pursuant to Section 172(11) of the Companies Act, 1965, a copy of which is annexed on page 90 of this Annual Report 2012 have been received by the Company for the nomination of Messrs. Crowe Horwath, who have given their consent to act, for appointment as Auditors and of the intention to propose the following ordinary resolution:

“THAT Messrs. Crowe Horwath be and are hereby appointed as the Auditors of the Company in place of the retiring Auditors, Messrs. Ernst & Young, to hold office until the conclusion of the next Annual General Meeting at a remuneration to be agreed between the Directors and the Auditors.”

5. As Special Business, to consider and, if thought fit, to pass the following resolutions with or

without modifications:-

Ordinary Resolution 1 - Authority to Issue Shares and Allot Shares

THAT subject always to the Companies Act, 1965, the Articles of Association of the Company and the approvals of the relevant governmental/regulatory authorities, if applicable, the Directors be and are hereby empowered pursuant to Section 132D of the Companies Act, 1965 to issue and allot ordinary shares in the Company at any time to such person(s) as the Directors may in their discretion deem fit provided that the aggregate number of ordinary shares to be issued does not exceed ten per centum (10%) of the total issued share capital of the Company at the time of issue and that such authority shall continue to be in force until the conclusion of the next Annual General Meeting of the Company.

Ordinary Resolution 2

- Proposed Renewal of Existing Shareholders’ Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature (”Proposed Renewal of Shareholders’ Mandate”)

THAT, subject to the provisions of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, approval be and is hereby given to the Company and/or its subsidiary companies to enter into recurrent related party transactions of a revenue or trading nature as set out in Section 2.3 of the Circular to Shareholder dated 4 June 2013, provided that such transactions are undertaken in the ordinary course of business, on arm’s length basis, on normal commercial terms which are not more favourable to the related party than those generally available to the public and are not detrimental to the minority shareholders;

NOTICE IS HEREBY GIVEN THAT the Fourth Annual General Meeting (AGM) of the Company will be held at the Ballroom of Ornaresort Berhad, Batu 16, Jalan Gapam, Ladang Gapam, Bemban, 77200 Jasin, Melaka on Thursday, 27 June 2013 at 10.30 a.m. for the following purposes:-

AGENDA

(Please refer to Explanatory Note 2(a))

(Resolution 1)

(Resolution 2)(Resolution 3)

(Resolution 4)

(Resolution 5)

(Resolution 6)


Notice of Annual General Meeting (Cont’d)

THAT such approval shall continue to be in force until:-

(a) the conclusion of the next AGM of the Company at which time it will lapse unless authority is renewed by a resolution passed at the next AGM;

(b) the expiration of the period within which the next AGM is to be held pursuant to Section 143(1) of the Companies Act, 1965 (“the Act”) (but must not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or

(c) revoked or varied by resolution passed by the shareholders in a general meeting, before the next AGM;

whichever is earlier;

AND THAT the Directors of the Company be authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary to give effect to the Proposed Renewal of Shareholders’ Mandate.

6. To transact any other ordinary business of which due notice has been given in accordance with

the Companies Act 1965.

By Order of the Board

Chua Siew Chuan (MAICSA 0777689)Sean Ne Teo (LS 0008058)Company Secretaries

Melaka4 June 2013

NOTES:

1. Appointment of Proxy

a. In respect of deposited security, only members whose names appear in the Record of Depositors on 21 June 2013 (“General Meeting Record of Depositors”) shall be eligible to attend, speak and vote at the Meeting.

b. A member entitled to attend and vote at the Meeting is entitled to appoint more than one proxy to attend and vote in his stead. A proxy may but does not need to be a member of the Company and the provisions of Section 149 (1)(b) of the Companies Act, 1965 need not be complied with. Where a member appoints more than one proxy, the appointments shall be invalid unless he specifies the proportions of his shareholdings to be represented by each proxy. A proxy appointed to attend and vote at the Meeting shall have the same rights as the member to speak at the Meeting. Notwithstanding this, a member entitled to attend and vote at the Meeting is entitled to appoint any person as his proxy to attend and vote instead of the member at the Meeting. There shall be no restriction as to the qualifications of the proxy.

c. In the case of a corporate member, the instrument appointing a proxy must be either under its common seal or under the hand of its officer or attorney duly authorised.

d. Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities account (“omnibus account”), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account it holds.

e. The instrument appointing a proxy must be deposited at the Registered Office of the Company at No. 60-1, Jalan Lagenda 5, Taman 1 Lagenda, 75400 Melaka not less than 48 hours before the time for holding the Meeting or at any adjournment thereof.


Notice of Annual General Meeting (Cont’d)

2. Explanatory Notes to Special Business:-

(a) Item 1 of the Agenda

The Agenda item is meant for discussion only as the provision of Section 169(1) of the Companies Act, 1965 does not require a formal approval of the shareholders for the Audited Financial Statements. Hence, this Agenda item is not put forward for voting.

(b) Authority to issue shares pursuant to Section 132D of the Companies Act, 1965

The proposed Ordinary Resolution 1, if passed, will empower the Directors of the Company to issue and allot at any time to such persons in their absolute discretion without convening a general meeting provided that the aggregate number of shares issued does not exceed 10% of the issued share capital of the Company for the time being (hereinafter referred to as the “General Mandate”).

The General Mandate will provide flexibility to the Company for allotment of shares for any possible fund raising activities, including but not limited to further placing of shares for the purpose of funding future investment project(s), working capital and/or acquisition(s).

This General Mandate is renewal. As at the date of this Notice, no new shares in the Company were issued pursuant to the mandate granted to the Directors at the Third AGM held on 28 June 2012 and which will lapse at the conclusion of the Fourth AGM.

(c) Proposed Renewal of Shareholders’ Mandate The proposed Ordinary Resolution 2, if passed, will allow the Group to enter into the recurrent related party transactions

of a revenue or trading nature pursuant to the provisions of the Main Market Listing Requirements of Bursa Securities. Please refer to the Circular to Shareholder dated 4 June 2013 for further information.


Notice Of Nomination Of Auditors

HOCK HENG STONE INDUSTRIES BHD.(Company No. 840040-H)(Incorporated in Malaysia)

PROXY FORM

CDS ACCOUNT NUMBER

NUMBER OF SHARES HELD

*I / We NRIC No./Company No

of (full address)

being a member/members of HOCK HENG STONE INDUSTRIES BHD., do hereby appoint

of

or failing him, of

or failing him, the CHAIRMAN OF THE MEETING, as *my/our proxy to attend and vote for *me/us and on *my/our behalf at the Fourth Annual General Meeting of the Company to be held at the Ballroom of Ornaresort Berhad, Batu 16, Jalan Gapam, Ladang Gapam, 77200 Bemban, Melaka on Thursday, 27 June 2013 at 10.30 a.m. and at any adjournment thereof.

*Strikeoutwhichevernotapplicable.

Please indicate with an “X” in the space provided above how you wish your votes to be casted. If no specific direction as to voting is given, the Proxy will vote or abstain from voting at his/her discretion.

As witness my/our hand(s) this day of 2013.

Signature of Member/Common SealNotes:

a. Inrespectofdepositedsecurity,onlymemberswhosenamesappearintheRecordofDepositorson21June2013(“GeneralMeetingRecordofDepositors”)shallbeeligibletoattend,speakandvoteattheMeeting.

b. AmemberentitledtoattendandvoteattheMeetingisentitledtoappointmorethanoneproxytoattendandvoteinhisstead.AproxymaybutdoesnotneedtobeamemberoftheCompanyandtheprovisionsofSection149(1)(b)oftheCompaniesAct,1965neednotbecompliedwith.Whereamemberappointsmorethanoneproxy,theappointmentsshallbeinvalidunlesshespecifiestheproportionsofhisshareholdingstoberepresentedbyeachproxy.AproxyappointedtoattendandvoteattheMeetingshallhavethesamerightsasthemembertospeakattheMeeting.Notwithstandingthis,amemberentitledtoattendandvoteattheMeetingisentitledtoappointanypersonashisproxytoattendandvoteinsteadofthememberattheMeeting.Thereshallbenorestrictionastothequalificationsoftheproxy.

c. Inthecaseofacorporatemember,theinstrumentappointingaproxymustbeeitherunderitscommonsealorunderthehandofitsofficerorattorneydulyauthorised.

d. WhereamemberoftheCompanyisanexemptauthorisednomineewhichholdsordinarysharesintheCompanyformultiplebeneficialownersinonesecuritiesaccount(“omnibusaccount”),thereisnolimittothenumberofproxieswhichtheexemptauthorisednomineemayappointinrespectofeachomnibusaccountitholds.

e. TheinstrumentappointingaproxymustbedepositedattheRegisteredOfficeoftheCompanyatNo.60-1,JalanLagenda5,Taman1Lagenda,75400Melakanotlessthan48hoursbeforethetimeforholdingtheMeetingoratanyadjournmentthereof.

No. Resolution 1. To receive the Audited Financial Statements for the financial year ended 31 December 2012 together with the Reports of

the Directors and the Auditors thereon.

No. Resolutions For Against 2. To approve the payment of Directors’ Fees for the financial year ended 31 December 2012. 3. To re-elect Peter Yong Kuen Fook who retires pursuant to Article 96 of the Company’s Articles

of Association. 4. To re-elect Yap Koon Roy who retires pursuant to Article 96 of the Company’s Articles of

Association. 5. To appoint Messrs. Crowe Horwath as Auditors of the Company in place of the retiring

Auditors, Messrs. Ernst & Young, to hold office until the conclusion of the next AGM and to authorise the Directors to fix their remuneration.

6. Special Business Ordinary Resolution 1 - Authority to Issue Shares pursuant to Section 132D of the Companies Act, 1965 7. Special Business Ordinary Resolution 2

- Proposed Renewal of the Existing Shareholders’ Mandate for RRPT

%

STAMP

FOLD HERE

FOLD THIS FLAP FOR SEALING

FOLD HERE

HOCK HENG STONE INDUSTRIES BHD. (Company No. 840040-H)

(IncorporatedinMalaysia)

No. 60-1, Jalan Lagenda 5Taman 1 Lagenda

75400 Melaka, Malaysia

THE COMPANY SECRETARY

About Hock Heng

Statement on Internal Control 18

Corporate Information 02

Corporate Structure 03


04


05


08

Corporate Governance Statement 11


21

Contents

Hock Heng Stone Industries Bhd. (“Hock Heng”) is one of the major manufacturers of dimension stones in Malaysia.

Hock Heng’s business activities include sourcing, processing and distributing a wide range of dimension stones including: granite, marble, sandstone and slate. Hock Heng’s products are mainly used for a wide array of applications in the commercial and residential properties, such as facade walls, flooring, staircases, monuments, furniture, pillars, garden sets and landscaping.

Hock Heng caters to retail and commercial customers through its manufacturing plant in Melaka as well as sales offices cum secondary processing plants located in Selangor, Pahang and Johor.

Among the Group’s project portfolio includes the supply and installation of dimension stones for external infrastructure and landscaping for Kuala Lumpur City Centre, carving panels for the Prime Minister’s office in Putrajaya, marble tiles for internal floor and wall finishing of the 26-storey UEM tower in KL Sentral and etc.

Contacts

Lot 197, Jalan Sungai Putat,Batu Berendam, 75350 Melaka.

Tel : 06. 317 2028Fax : 06. 317 9324

Email : [email protected] : www.hockheng.com.my

Hock Heng Stone Industries Bhd.


Tel : 06. 317 2028Fax : 06. 317 4264

Hock Heng Granite Sdn. Bhd.

Lot 13, Jalan TUDM,Seksyen U6,

Kg. Baru Subang,40150 Shah Alam,

Selangor Darul Ehsan.Tel : 03. 7843 9933Fax : 03. 7845 6753

Hock Heng Marketing (KL) Sdn. Bhd.(In progress of renovation)

20, PTD 111402,Jalan Plentong 8,

Sri Plentong Industrial Park,81750 Masai,

Johor Darul Takzim.Tel : 07. 386 8028 / 9028

Fax : 07. 386 3028

Hock Heng Marketing(Southern Region) Sdn. Bhd.

10, Jalan Industrial Semambu 9/3,Cocopalm Industrial Park,

25300 Kuantan,Pahang Darul Makmur.

Tel : 09. 560 2212 / 2213Fax : 09. 560 2218

Hock Heng Stone (East Coast) Sdn. Bhd.

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Annual Report2012

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Tel: 06 317 2028 Fax: 06 317 9324

Email: [email protected]

Website: www.hockheng.com.my

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