UOB Kay Hian&rsquo s (UOBKH) Singapore research team has identified OKP Holdings (OKP) to be a &ldquo bargain&rdquo in Singapore&rsquo s infrastructure upcycle.

 

The team notes that OKP&rsquo s &ldquo undemanding&rdquo valuation is backed by its strong growth in earnings. In the 1HFY2025 ended June, the group&rsquo s net profit surged 61% y-o-y to $19.1 million, backed by expanded margins driven by &ldquo higher quality&rdquo projects. This translates to an FY2025 price-to-earnings ratio (P/E) of 9 times.

 

&ldquo Excluding its sizeable net cash balance of $115 million, OKP trades at just 6 times ex-cash P/E, or a deep 30% discount to its peers&rsquo average of 13 times FY2025 P/E per Bloomberg, suggesting room for a valuation re-rating,&rdquo writes the team in their Sept 22 un-rated report.

 

Another point of strength is OKP&rsquo s orderbook. As at June, the group&rsquo s orderbook of $648 million provides earnings visibility to FY2031. In May, OKP also secured its largest-ever contract in the form of a $258 million project from the Land Transport Authority (LTA) to build the East Region cycling path.

 

On this, the team writes: &ldquo This positions OKP as a key beneficiary of LTA&rsquo s plan to more than double Singapore&rsquo s cycling path network from 530 kilometres in 2024 to 1,300 kilometres by 2030.&rdquo

 

Despite project recognition, the group&rsquo s pipeline remains robust. The UOBKH analysts see that the group is well-positioned to &ldquo ride&rdquo on the recovery of the construction sector, supported by public infrastructure spending. OKP&rsquo s &ldquo A1 grading&rdquo allows it to participate in public projects of &ldquo unlimited value&rdquo , add the analysts.

 

At the same time, OKP has maintained a sizable net cash position since FY2023. As of 1HFY2025, the group&rsquo s net cash position increased 6.2% to $115 million, representing 44% of its current market cap.

 

&ldquo Such balance sheet strength provides ample buffer against sector cyclicality, enhances tendering ability for large-scale projects and leaves flexibility for selective acquisitions aligned with its core construction business. Shareholders continue to benefit as well, with payout and dividend yields increasing,&rdquo writes the team.

 

Meanwhile, the analysts point to &ldquo less capital-intensive&rdquo commuter faculty and cycling path projects supporting margins. Although OKP&rsquo s maintenance segment&rsquo s margins compressed to 9.5% on competitive pricing, the segment still provides &ldquo stable, recurring&rdquo cash flows, which sustains its market share.

 

The analysts write: &ldquo Together with recurring rental income from its property investments, OKP has income stability across cyclicality. As OKP refocuses on its construction core competency, scale efficiencies, and disciplined tendering help sustain its competitiveness despite foreign entrants.&rdquo

 

Two share price catalysts noted by them include the group&rsquo s continued benefitting from the construction sector&rsquo s uplift and its financial resilience.

 

OKP Holdings has reported earnings of $19.1 million for the 1HFY2025 ended June 30, up 60.7% y-o-y.

 

The infrastructure and civil engineering company reported a revenue of $104.3 million for 1HFY2025, up 41.2% y-o-y.

 

Gross profit for the period came in 54.2% y-o-y higher at $32.1 million, resulting in gross profit margin increasing 2.6 percentage points (ppts) to 30.8% for the first half of the year.

 

The group&rsquo s increase in revenue was due to a 57.4% growth in revenue from the construction segment and 21.1% rise in revenue from the maintenance segment, which were partially offset by a 39.8% decrease in rental income.

 

The construction and maintenance segments saw a higher percentage of revenue recognised from various ongoing and newly awarded construction projects as they progressed to a more active phase. These segments represent 69.5% and 28.7% of the group&rsquo s revenue respectively.

 

Rental income decline was mainly due to ongoing major renovations at the property in Western Australia and the transition period following tenant departures during the last financial year. This segment accounted for 1.8% of the group&rsquo s total revenue.

 

Other gains decreased to $800,000 in 1HFY2025, primarily due to lower gain on disposal of fixed assets and higher foreign exchange loss arising from the revaluation of assets and liabilities denominated in Australian dollar to Singapore dollar.

 

The group&rsquo s free cash and cash equivalents increased to $131 million as at June 30, and order book for the period stood at $648.3 million with projects extending till 2031.