OKP Holdings

OCBC on 28 June 2012

OKP Holdings (OKP) announced it is investing S$111,111 in a 10% stake of CS Land Properties Pte. Ltd. (CSLP), a wholly-owned subsidiary of the China Sonangol group. As part of the investment agreement, OKP will provide CSLP with a loan facility of up to S$20m for a maximum period of six years and at an annual interest rate of 2% above SIBOR. CSLP is seeking to redevelop the site at the former Amber Towers, which it acquired at a cost of S$161.6m, into a premium condominium project. Management previously stated it is going into property development so as to better utilise its strong net cash position. Since the investment in CSLP is not expected to have any material impact on OKP’s financials for FY12, we maintain our HOLD rating on OKP and our fair value estimate of S$0.53/share.

10% stake investment in CSLP
OKP Holdings (OKP) announced it has subscribed for 111,111 ordinary shares, or a 10% stake, at S$1/share of CS Land Properties Pte. Ltd. (CSLP), a wholly-owned subsidiary of the China Sonangol group. As part of the investment agreement, OKP will use part of its S$90m net cash position to provide CSLP with a loan facility of up to S$20m for a maximum period of six years and at an annual interest rate of 2% above SIBOR. CSLP has already drawn down ~S$18.4m of this loan facility.

Redeveloping Amber Towers
On top of the increased collaboration between OKP and the China Sonangol Group, a substantial shareholder with a 14.1% stake in OKP, the investment in CSLP paves the way for OKP’s maiden foray into property development. CSLP is seeking to redevelop the site at the former Amber Towers, which it acquired at a cost of S$161.6m, into a premium condominium project. The acquisition price translates into a psf ppr of S$1,118 and the 40,708 sq ft freehold site can be redeveloped to a GFA of ~145,000 sq ft.

OKP’s strategy in property development
Instead of deviating from its core business of public infrastructure construction, management previously stated it is going into property development so as to better utilise its strong net cash position. Furthermore, it will only invest in minority stakes in property developing JVs in order to limit its exposure to this more volatile sector. However, the S$20m loan facility OKP is providing to CSLP will invariably increase its risk exposure. Nevertheless, the loan’s interest rate is favourable to OKP, and OKP or its associates are likely receive the relevant construction contract.

Maintain HOLD
OKP said the investment in CSLP is not expected to have any material impact on its financials for FY12. Thus, we maintain our HOLD rating on OKP and our fair value estimate of S$0.53/share.