Infrastructure and civil engineering company, OKP Holdings 5CF 0.00% anounced a 66.1% decline in net profit to $12.1 million in 1HFY2024 for the six months to end-June. In 1HFY2023 OKP had one-off item under other gains from an arbitral award in relation to a contract. 

In 1HFY2024, OKP reported 5.6% y-o-y increase in revenue to $73.9 million due to higher contribution from the construction segment of $5.6 million, partially offset by a decrease of $1.6 million and $0.1 million from the maintenance segment and rental income, respectively. 

 

Revenue from the construction segment registered growth to $46.1 million, mainly driven by a higher percentage of revenue recognised from various ongoing and newly awarded construction projects as they progressed to a more active phase in 1H2024. Conversely, revenue from the maintenance segment declined to $24.7 million, mainly due to the completion of certain projects and the reduction in maintenance revenue. The construction and maintenance segments remain the major contributors to the Group&rsquo s revenue, representing 62.4% and 33.4% of the Group&rsquo s 1H2024 revenue, respectively.

 

The Group&rsquo s rental income generated from investment properties experienced a marginal decline to $3.1 million, mainly attributed to the strengthening of the Singapore dollar against the Australian dollar as the rental income generated from the property at 6-8 Bennett Street, East Perth, Western Australia was denominated in Australian dollar. Overall, the Group&rsquo s rental income accounted for 4.2% of the Group&rsquo s total revenue in 1H2024. 

 

As of June 30, the group' s net tangible assets stood at $175.3 million, and NTA per share stood at 57.12 cents compared to 54.66 cents at end-December 2023. 

OKP&rsquo s free cash and cash equivalents increased to S$94.2 million as at 30 June 2024, 

compared to S$65.8 million a year ago. 

Earnings per share (basic) for 1H2024 decreased by 66.6% to 3.88 Singapore cents, as 

compared to 11.61 Singapore cents in 1H2023. 

Based on OKP&rsquo s closing share price of S$0.315 as at 7 August 2024, the Group&rsquo s market 

capitalisation is S$96.7 million

The company is worth at the cash onhand only. Continued to be undervalued. 
 

OKP&rsquo s : 5CF 0% wholly owned subsidiary Eng Lam Contractors has secured a contract worth S$92.9 million from the Land Transport Authority (LTA) for the construction of new cycling path networks, OKP said on Wednesday (Apr 24).

 

The 18-month contract commenced on Apr 18 and is expected to be completed by 2025, the infrastructure and civil engineering company said.

 

OKP&rsquo s net construction order book has reached a record high of S$735.2 million, with contracts lasting till 2027.

 

Under the LTA contract, Eng Lam Contractors will construct cycling paths in the west of Singapore, comprising Clementi, Bukit Batok, Queenstown and Jurong West.

 

Since August 2023, the OKP has been awarded three LTA contracts for the construction of cycling path networks, totalling S$359.5 million.

For years, OKP Holdings 5CF 0.00% has grown its business by constructing and maintaining roads so that cars, buses and trucks can roll smoothly from one point of the island to another. Over the past year, OKP has won a bigger share of contracts serving another mode of transport: the humble bicycle.

 

Last August, the company won contracts worth $188.3 million from the Land Transport Authority (LTA) to build a new cycling path network in seven towns island-wide: Geylang, Hougang, Kaki Bukit, Marine Parade, Potong Pasir, Sengkang and Serangoon.

 

That contract was part of LTA&rsquo s plans to have a 1,300km network of cycling paths by 2030, up from 530km last January, to support the growing popularity of cycling as a sport and transportation mode. Cycling paths are also part of the government&rsquo s effort to improve the so-called &ldquo commuter infrastructure&rdquo by providing a denser network of walkways and dedicated cycling paths connecting key nodes such as train stations, neighbourhood centres and schools.

 

OKP&rsquo s momentum of winning contracts is carrying into the new year. On Feb 27, it won contracts worth $78.3 million to expand the cycling network at Central, Kallang, Bukit Merah and Bukit Timah. &ldquo There will be more,&rdquo managing director Or Toh Wat tells The Edge Singapore in an interview.

 

OKP has clinched contracts from other repeat customers too. Last October, it won a contract worth $11.7 million from PUB for drainage improvement works. In December 2023, it won another contract worth $12.7 million from LTA for ad hoc improvement of road-related facilities in western Singapore and another contract from PUB worth $14 million for drainage improvement works.

 

Most recently, on March 1, OKP secured yet another contract from LTA to rebuild footpaths worth $44.5 million and on March 25, the company picked up another contract from PUB for drainage works worth $17.7 million. With this latest contract, OKP&rsquo s net construction order book hit a record $660.4 million, to be fulfilled between now and 2027.

 

Until last year, OKP was making headlines for the wrong reasons. In 2017, it was linked to a high-profile fatal construction accident when a viaduct collapsed, killing a worker and injuring 10 others. In May 2021, OKP, as the contractor, was fined $1 million for failing to take reasonable measures to ensure the safety of its workers, resulting in jail sentences for two employees. OKP subsequently took the consultancy it hired to design the viaduct to arbitration. Last March, OKP was awarded more than $43 million in damages, costs and interests.

 

Thanks to the verdict, OKP reported earnings of $44.6 million in FY2023 ended Dec 31, 2023, versus a loss of $1 million incurred in FY2022. Revenue grew by 36.3% to $160.4 million in the same period. Gross profit margin improved by 6.2 percentage points to 15.4%.

 

According to Or, some of his industry contacts were surprised that OKP was able to receive such a big sum from the arbitration. However, OKP&rsquo s management points out that the arbitration award covered costs incurred, earnings and interests foregone since the July 2017 accident. Smoothened out as a straight line over the past six years, the costs and earnings foregone would be about $7 million a year. &ldquo We just want to put things behind us and then just focus back on our core business,&rdquo he says.

 

Without prompting, Or points out another line item in the FY2023 numbers that stood out &mdash remuneration for the executive directors of the company increased from around $2.4 million in FY2022 to $10.7 million. Or explains that the jump came from a bigger earnings-pegged bonus stipulated under their existing service agreements that did not change after the accident.

As at Dec 31, 2023, OKP&rsquo s NTA per share was 54.66 cents, with free cash and equivalents totalling $81.7 million, up from $20.8 million a year earlier. In contrast, OKP had a market cap of $78.7 million.

 

With the one-off earnings bump, OKP has declared final and special dividends of 0.7 cents and 0.8 cents respectively, bringing FY2023 total dividends to 2 cents, up from 0.7 cents declared in FY2022. Some investors suggest that OKP could afford a higher payout for FY2023, given that the $43 million awarded from the arbitration award alone is the equivalent of 14 cents per share.

 

Daniel Or, OKP&rsquo s executive director, points out that the company consistently pays out dividends of at least 0.7 cents per year, even in FY2018 and FY2022 when it incurred an overall loss. The dividend yield, says Daniel, typically ranged between 5% and 6% a year, which he figures is &ldquo very decent&rdquo .

 

Mix of contracts

Is OKP holding back dividends to conserve cash for other specific purposes? Indeed, as OKP steps up its bid for more government projects, it believes a strong balance sheet will put it in good stead when the agencies award their contractors.

 

Management points out that as the projects are getting bigger, it requires a correspondingly stronger balance sheet to get a better chance at winning these contracts. A strong balance sheet also gives OKP more bargaining power with the banks. The company is aware that contractors have not had an easy time in the last few years. &ldquo That is why we are preserving our cash,&rdquo adds Daniel.

 

Besides having the balance sheet strength to show potential customers, does OKP have plans to generate other growth such as buying properties for investment or developing projects? The company, after all, is no stranger to both.

 

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OKP is at the tail end of two residential development projects. All apartments at the 74-unit Phoenix Residences and 84-unit The Essence have been sold. OKP is a minority partner in both of these developments.

 

Anticipating contracts would be harder to come by following the 2017 accident, in February 2018, OKP took a 51% stake in a nine-storey office building in Perth for A$43.5 million to generate a certain level of recurring income to beef up earnings even as revenue from its core business slows.

 

More recently, in January 2021, OKP, via a 51% held venture, acquired a shophouse at 35 Kreta Ayer Road for $11.3 million. In August 2021, it bought two adjoining freehold shophouses at Kampong Bahru Road for $12.38 million, again via a 51% venture. In FY2023, OKP&rsquo s investment properties segment generated a total rental income of $6.4 million, up marginally from $5.3 million.

 

According to Daniel, the company is not actively seeking more investment properties, as it prefers to be more opportunistic. &ldquo The prices are quite high right now,&rdquo he says, referring to shophouses that most recently transacted at around $4,000 psf versus the some $2,000 psf OKP paid for back then. Nonetheless, &ldquo if any opportunity arises, we have the means&rdquo , he adds.

 

New cost pressures?

As such, OKP&rsquo s core focus will be on civil engineering and infrastructure. The company&rsquo s management is upbeat that there will be a steady flow of construction projects it can bid for, which, besides cycling paths and the likes, will also include big infrastructure projects such as Changi Airport&rsquo s Terminal 5, where besides the terminal building, new connecting roads would also have to be constructed.

 

OKP will seek a mix of projects of varying sizes. Apart from big infrastructure projects stretching six to seven years or more, OKP has contracts with shorter time frames of between 18 months and three years. This means the company can better manage its resources and deploy its people in a more agile manner instead of dedicating large teams to undertake bigger projects that will take much longer to complete and bill.

 

Incidentally, OKP was less active in winning new projects just when the pandemic hit while raw material prices shot up and labourers vanished overnight. Many contractors, forced to deal with prolonged shutdowns and delays, faced ballooning costs and work stoppages. Some contractors even had to be replaced so projects would not grind to a halt. &ldquo We were also not spared,&rdquo says Or, referring to the contracts awarded before the pandemic that fetched lower margins.

 

The pandemic-induced cost pressures have since eased. However, OKP is bracing for another surge in costs due to the coming expansion of the two integrated resorts. Genting Singapore G13 0.56% said it will spend $6.8 billion to expand and upgrade Resorts World Sentosa. Las Vegas Sands Corp, which runs Marina Bay Sands, is spending $4.5 billion to expand, including a fourth hotel tower block, an entertainment arena, and additional exhibition and retail space. &ldquo The industry will again face a bit of a shortage of manpower,&rdquo rues Or.

 

Nonetheless, OKP&rsquo s management believes that the construction industry, with the pandemic still fresh on their minds, will be more careful when bidding for contracts.

 

That is why, putting the viaduct accident behind it and coupled with a brighter demand outlook, OKP is ready to bounce back stronger. Will FY2024 turn out to be a better year for the company? &ldquo Based on what we see, we are confident,&rdquo says Daniel.

OKP Holdings&rsquo 5CF 0.00% wholly-owned subsidiary, Eng Lam Contractors Co, has secured a $44.5 million contract from the Land Transport Authority (LTA) for the renewal of footpaths for continued usability.

 

The three-year contract commenced on Jan 5 and is expected to be completed by Jan 4, 2027. 

 

OKP&rsquo s subsidiary will work on footpaths including tiled walkways and interlocking paving blocks, as well as the replacement of affected related road and footpath elements such as gratings, tactile tiles, kerbs and railings. 

 

Other ancillary works include the reinstatement of road facilities and footpath markings, along with the conversion and replacement of tiles.

 

The contract raises the group&rsquo s current net construction order book to approximately $656.5 million, with projects extending to 2027.

 

Group managing director Or Toh Wat says: &ldquo Securing this new contract marks a milestone for the new year, paving the way for growth. In our commitment to ensuring the safety of Singapore' s public commuting infrastructure, we remain focused on the smooth delivery of this project by leveraging on our expertise and specialisation.&rdquo