For the first quarter of the year, PATMI came down 22.2% YoY to S$2.4m – below our expectations and consensus estimates – mostly due to margin pressures from increased subcontracting and labour costs. Looking ahead, we see softer gross margins in the vicinity of 15%-20% for OKP as it continues to face significant cost-side pressures from more restrictive labour regulations from authorities and increased competition to hire and retain engineers. That said, OKP continues to have a fairly healthy order book at S$393.5m as at 30 Apr 2013, as the group benefits from significant experience in public-sector construction and maintenance projects with a good reputation for on-time delivery. We last rated OKP a HOLD with a fair value estimate of S$0.46, based on a P/E multiple of 11x applied to FY13F EPS. Due to a re-allocation of internal resources, we are ceasing coverage on this counter.
Margin pressure from higher labor costs
1Q13 revenue was 28.4% higher YoY but we saw a steeper than expected dip in gross margins from 21.0% to 15.1% over the quarter. As a result, 1Q13 PATMI came down 22.2% YoY to S$2.4m, which was below our expectations and consensus estimates. Management indicates at margin pressures from increased subcontracting and labour costs due to more restrictive labour regulations from authorities and increased competition to hire and retain engineers. Looking ahead, we see softer gross margins in the vicinity of 15%-20% for OKP as it continues to face significant cost-side pressures now ubiquitous for major players across the construction sector.
Order book fairly healthy
That said, OKP continues to have a fairly healthy order book at S$393.5m as at 30 Apr 2013, as the group benefits from significant experience in public-sector construction and maintenance projects with a good reputation for on-time delivery. In 2013 to date, it won two contracts from the PUB: first, a S$6.7m contract for the dredging of Sungei Api Api and second, a S$10.2m contract for the improvement of roadside drains, mainly involving the construction of box drains/entrance culverts in the Joo Chiat District.
MRT contracts a source for new contracts
In addition, OKP intends to compete for contracts related to the new MRT lines ahead which management views to be a strong source for construction demand. For this purpose, the group indicates that it has found an established foreign partner with which it intends to jointly tender for contracts.
Ceasing coverage
We last rated OKP a HOLD with a fair value estimate of S$0.46, based on a P/E multiple of 11x applied to FY13F EPS. Due to a re-allocation of internal resources, we are ceasing coverage on this counter.
1Q13 revenue was 28.4% higher YoY but we saw a steeper than expected dip in gross margins from 21.0% to 15.1% over the quarter. As a result, 1Q13 PATMI came down 22.2% YoY to S$2.4m, which was below our expectations and consensus estimates. Management indicates at margin pressures from increased subcontracting and labour costs due to more restrictive labour regulations from authorities and increased competition to hire and retain engineers. Looking ahead, we see softer gross margins in the vicinity of 15%-20% for OKP as it continues to face significant cost-side pressures now ubiquitous for major players across the construction sector.
Order book fairly healthy
That said, OKP continues to have a fairly healthy order book at S$393.5m as at 30 Apr 2013, as the group benefits from significant experience in public-sector construction and maintenance projects with a good reputation for on-time delivery. In 2013 to date, it won two contracts from the PUB: first, a S$6.7m contract for the dredging of Sungei Api Api and second, a S$10.2m contract for the improvement of roadside drains, mainly involving the construction of box drains/entrance culverts in the Joo Chiat District.
MRT contracts a source for new contracts
In addition, OKP intends to compete for contracts related to the new MRT lines ahead which management views to be a strong source for construction demand. For this purpose, the group indicates that it has found an established foreign partner with which it intends to jointly tender for contracts.
Ceasing coverage
We last rated OKP a HOLD with a fair value estimate of S$0.46, based on a P/E multiple of 11x applied to FY13F EPS. Due to a re-allocation of internal resources, we are ceasing coverage on this counter.
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