OKP Holdings

OCBC on 23 Jul 2012

OKP Holdings (OKP) reported that its 2Q12 revenue fell 17% YoY to S$23.6m, while PATMI sank 55% to S$3.1m. For the rest of 2012, management guided that revenue recognition is likely to remain slow and gross margin should remain in the range of low twenties. Management also said the fall in revenue is due to slower revenue recognition from some recently awarded projects. While management has not confirmed this, it is likely that the design-and-build project to expand the CTE/TPE/SLE interchange has experienced some execution delays, resulting in the slower recognition of revenue in 2Q12. Despite the delays, we expect the execution of this project to ramp up by the end of this year. Based on our 12-month investment horizon, we maintain our fair value estimate of S$0.53/share and HOLD rating on OKP.

A disappointing quarter
OKP Holdings (OKP) reported its 2Q12 financials. Revenue fell 17% YoY to S$23.6m and PATMI sank 55% to S$3.1m. Management said the fall in revenue is due to slower revenue recognition from some recently awarded projects. Also, OKP’s 2Q12 gross margin contracted by 15.1ppt to 24% because its gross margin in 2Q11 was boosted by a more profitable project, which has since been completed. For the rest of 2012, management guided that revenue recognition is likely to remain slow and gross margin should remain in the range of low twenties. In addition, management did not recommend an interim dividend, compared to last year’s $0.01/share.

Order book remains robust
OKP’s current gross order book of S$341.6m remains robust. It was boosted by new contracts secured year-to-date worth a total of S$93m, including the design-and-build project to expand the CTE/TPE/SLE interchange worth $75.3m. While management has not confirmed this, it is likely that this project has experienced some execution delays, resulting in the slower recognition of revenue in 2Q12. Despite the delays, the execution of this expressway project is still expected to ramp up by the end of this year.

Management reiterates focus
Despite OKP’s recent foray into property development, via its 10%-stake in CS Amber Development to redevelop the former Amber Towers, management reiterated OKP’s focus on its core business of public construction and maintenance projects. In addition, OKP will likely bid for larger and more complex civil engineering projects going forward so as to increase its profitability.

Maintain HOLD
We further reduce our FY12F revenue and PATMI estimates of OKP by 18% and 38% respectively to S$98.7m and S$12.2m. Since the revenue recognition of recently awarded projects will eventually pick up, coupled with our 12-month investment horizon, we maintain our fair value estimate of S$0.53/share and HOLD rating on OKP.