OKP Holdings

[weijian]

The main bright point of OKP's 2H23 was the big increase in GP and naturally follows the question of whether "a higher GP  than post accident" is sustainable or not. A shareholder has asked about it and Mgt is giving good vibes from the answer.

MINUTES OF TWENTY-SECOND ANNUAL GENERAL MEETING

Question: It is noted that the gross profit margin of the Group had increased and the Group has a large order book. Will the margin for FY2024 be higher, lower or the same?

Answer: The gross profit margin should be sustainable. The projects in FY2022 were mainly secured before the COVID-19 pandemic. For FY2023, the projects were mostly secured after the COVID-19 pandemic and had better margins. There was also the arbitration award in 2023. The Management is mindful of securing contracts with good profit margins during the tender. As disclosed on the GeBIZ website, the Group was recently awarded a new cycling path network project by LTA and an announcement would be made once it has been cleared by LTA. The Group is aware of future contracts and will allocate its resources accordingly when deciding on which contracts to tender for.

https://links.sgx.com/FileOpen/2024%20AG...eID=802970

A good set of results - As indicated by Mgt during AGM few months ago, 1H24's GPM is at 28%, which is comparable to 2H23's 25%. We should be expecting this GP to persist, I suppose.

But the biggest question is of course, will the Ors (sufficiently) share? Or will they be "diversifying" most of the bonzana into investment properties for "recurring income". After all, plenty of stuff available when you have the cash. Ors could also buy 1-2 hotel buildings and try their hand in hospitality. Nothing is more prestigious that that, I suppose.

Half Year Financial Statements for the Period Ended 30 June 2024

Looking ahead, the Group expects continued global uncertainties, including sustained high interest rates and rising construction costs. Nevertheless, the Group will embrace technologies and innovation to enhance operational efficiencies. This will help mitigate the impact of rising construction costs, while creating better sustainable built environments for all. Supported by a healthy pipeline of construction projects, the Group will remain vigilant in navigating challenging market conditions, ensuring effective cashflow management and maintain prudence in its capital structure and finances. As of 30 June 2024, the Group’s order book stood at a record high of $706.9 million, with projects extending till 2027.

To enhance its recurring income, the Group owns a portfolio of investment properties. These include a freehold, three-storey shophouse situated at 35 Kreta Ayer Road as well as freehold, two-storey conservation shophouses located at 69 and 71 Kampong Bahru Road. These properties, held through its 51%-owned subsidiary, Raffles Prestige Capital Pte. Ltd., continue to generate a steady stream of recurring rental income, contributing positively towards the Group’s performance. Backed by a strong track record and decades of industry expertise, the Group remains committed to its long-term strategy of diversifying earnings and building on its portfolio recurring income stream. The Group will continue to explore strategic partnerships to strengthen its foothold in property development and investment ventures and will embrace technologies and innovations to achieve a more sustainable future.

https://links.sgx.com/FileOpen/OKP%201H2...eID=814691

[¯|_(ツ)_/¯]

OKP@66cents

FY2024 results was released in 25 Feb 2025:

• REV +13.3%
  
• GP +135.4%
  
• NP -30.9% (mainly due to absent of one-off award)
  

Dividend of 2.5cts consists of 1cts + 1.5cts (special dividend) xd on 8 May 2025 (link to SGX)

On 1 Apr 2025, Nicholas Yon (Lim & Tan) initiated a analyst report on OKP (link to OKP website)

OKP Holdings, with its holistic range of construction services, stands out as a prime candidate to capitalize on Singapore’s construction boom. This long-awaited multi-year upcycle will see construction demand reaching historical highs. Commanding a robust order book (S$600.7mln) and a solid net cash position (c.63% of market cap) as of FY24, OKP boasts a compelling mix of strong fundamentals, including attractive valuations and a stellar track record. Additionally, with its operating leverage, OKP is better poised to capitalize on the construction boom, allowing it to deliver record profits and potentially raise dividends in FY25.
We thus initiate a BUY recommendation on OKP Holdings with a target price of S$0.93, based on a 8x forward P/E, in line with peers average. OKP is well supported by it’s 35 cents net cash and our ascribed 8x P/E target conservatively represents a c.21% discount to its trough P/E of 10.1x in 2016 when its previous peak earnings came in at S$14.5mln.

As of today, OKP is my top 3 SG holdings and I am confidence of it's strong management capabilities in the uncertainty ahead. 

Enjoy a talk by Nicholas Yon on Construction Sectors in 2022:


Gratitude!

[weijian]

I suppose there will be some mean reversion for the GPM soon. But in general, Spore construction industry is going strong.

MINUTES OF TWENTY-THIRD ANNUAL GENERAL MEETING

However, in the last two years, OKP secured certain projects for commuter infrastructure where the Group had developed
strengths in. The Group has recently been focusing on such projects and has three ongoing projects. The Group faces lesser competition for such projects. There are 4-6 tenderers on average for such projects, as compared to more than 10 tenderers for other kinds of projects. The skillsets required for such commuter infrastructure projects are different and include effective and prudent project management and cost controls. The Group is able to control costs as it has sufficient internal resources with headcount of approximately 800.

The Management is unable to tell whether the Group will be able to secure future projects. Based on the upcoming projects announced by the Building and Construction Authority, the Group should be able to secure some projects in the next two years. However, a profit margin of 30% is definitely not sustainable as the Group will price itself out of the market. The Group will try to maximise profit margins by executing projects well.

https://links.sgx.com/FileOpen/AGM%20Min...eID=846132

[¯|_(ツ)_/¯]

OKP@66cents

@wj, I agreed on the mean reversion on GPM.  I also agreed that Construction Sector is going strong, simply because this is one sector that our Government can control in this uncertainty.

You had extracted a good part of the QnA which I will reproduce with some highlight:

However, in the last two years, OKP secured certain projects for commuter infrastructure where the Group had developed

strengths in. The Group has recently been focusing on such projects and has three ongoing projects. The Group faces lesser competition for such projects. There are 4-6 tenderers on average for such projects, as compared to more than 10 tenderers for other kinds of projects. The skillsets required for such commuter infrastructure projects are different and include effective and prudent project management and cost controls. The Group is able to control costs as it has sufficient internal resources with headcount of approximately 800.

The Management is unable to tell whether the Group will be able to secure future projects. Based on the upcoming projects announced by the Building and Construction Authority, the Group should be able to secure some projects in the next two years. However, a profit margin of 30% is definitely not sustainable as the Group will price itself out of the market. The Group will try to maximise profit margins by executing projects well.

The way I interpret this QnA is basically, OKP had already won some tenders and they are just waiting for announcement.  

Of course, you could disagree with me based on your own interpretation and I'm not going to argue with you.  

This is simply how I read.  

So, let's just be a bit patient for the official release.

Re-produced your quote again with different highlight:

However, in the last two years, OKP secured certain projects for commuter infrastructure where the Group had developed
strengths in. The Group has recently been focusing on such projects and has three ongoing projects. The Group faces lesser competition for such projects. There are 4-6 tenderers on average for such projects, as compared to more than 10 tenderers for other kinds of projects. The skillsets required for such commuter infrastructure projects are different and include effective and prudent project management and cost controls. The Group is able to control costs as it has sufficient internal resources with headcount of approximately 800.

The Management is unable to tell whether the Group will be able to secure future projects. Based on the upcoming projects announced by the Building and Construction Authority, the Group should be able to secure some projects in the next two years. However, a profit margin of 30% is definitely not sustainable as the Group will price itself out of the market. The Group will try to maximise profit margins by executing projects well.

I interpret this as 30% profit margin is not sustainable (quite trivial). However, OKP is able to control costs and with their proven project management capabilities, double digit profit margin should be achievable.

Again, you could disagree but this is how I read.

Let's see what happen in next 12 months.

For valuebuddies who is serious on OKP, why not click and read the whole QnA? (link to sgx)

Enjoy:


Gratitude!

[weijian]

Hi ¯|_(ツ)_/¯

I would imagine that OKP's specialization (eg. commuter infrastructure) does not have high enough project tender values that will attract foreign competition, ie. Chinese competition looking to utilize their excess capacity. Unfortunately, OKP is listed and has to publish pretty transparent accounts publicly and juicy margins might just attract their attention. Would some of them might actually start to encroach into this space if they consider using profits from "A" to compensate for "B". So, high profit margins could turn out to be a bane in the face of Chinese competition.

[¯|_(ツ)_/¯]

@wj, I'm glad that you pick up OKP latest focus area which Mr Or coined as Commuter Infrastructure.

As most of our valuebuddies would had been playing with Singapore (or regional) stock market, one of the characteristic of these companies is their revenue is rather small due to smaller projects/deals (compared to say USA).

I agreed that these small (smaller) deals does not attract (China company) competitions and put OKP into the right spots of sufficiently high revenue with double digit profits margin.

If you're keen, just spend 15 mins to watch Mr Or webinars on FY2024 results: (link to OKP webpage)

As a summary, Mr Or reported that in FY2024, they managed to secure 5 tenders at a value of $257m.  These are basically what he called Commuter Infrastructure such as cycling path, road sign, drainage projects.  I don't know what you think, but with 5 projects totaling $257m is a reasonable size to me. 

Then the next questions would be how fast or how long is the completion timeline? I mean, no point you got $250m and takes 10 years to materialise.

For this, I will leave it to those interested to find out.

Enjoy:


Gratitude!

[edragon]

Thanks @¯|_(ツ)_/¯.

From the AGM minutes, this may be relevant:

Question : The Group had stellar gross profit margins and record profit in FY2024. Is this
the expected future trend? Is there a road map for the Group to double its profit?
Answer
(Mr Or Toh Wat)
: The Group’s profit margins fluctuate based on the types of work carried out and
the timing of the projects. During the COVID-19 pandemic, many companies in
the construction industry suffered. However, in the last two years, OKP secured
certain projects for commuter infrastructure where the Group had developed
strengths in. The Group has recently been focusing on such projects and has
three ongoing projects. The Group faces lesser competition for such projects.
There are 4-6 tenderers on average for such projects, as compared to more
than 10 tenderers for other kinds of projects. The skillsets required for such
commuter infrastructure projects are different and include effective and prudent
project management and cost controls. The Group is able to control costs as it
has sufficient internal resources with headcount of approximately 800.
While the Group has a substantial orderbook, the Management is unable to
predict the future stream of projects. The potential impact of the trade tariffs
imposed by the US is also unclear currently. Material prices may increase as a
result of the tariffs. For ready-mix concrete and reinforcement steel bars, the
project contracts will typically allow for fluctuations in their prices. But there is
no such provision for other materials. The Management can only try its best to
factor in any potential increase in material prices when tendering for projects.
As for profits, in order for the Group to double its profits, there will be a need to
double its revenue. This will not be possible in the next one to two years. The
Management will try its best to improve profits incrementally.


--

[dxdx]

i'm quite confused on the GPM growth they had. Their response to the question has been very generic as well, citing a disciplined approach and cost effiiciencies - you mean they didnt have this cost cutting discipline in the last 3-4 years?

also, F23 NPAT was driven by mainly by the one-off 43M of arbitration award. Once backed out, Net Margin is only about 2-3%, which is roughly in line with historical.

i also think GPM mean reversion is likely.

Incidentally, this GPM spike was also seen in HLS - but at least they explained it via project stage recognition and alluded to future mean reversion.

[dxdx]

Thanks @¯|_(ツ)_/¯.

From the AGM minutes, this may be relevant:

Question : The Group had stellar gross profit margins and record profit in FY2024. Is this
the expected future trend? Is there a road map for the Group to double its profit?
Answer
(Mr Or Toh Wat)
: The Group’s profit margins fluctuate based on the types of work carried out and
the timing of the projects. During the COVID-19 pandemic, many companies in
the construction industry suffered. However, in the last two years, OKP secured
certain projects for commuter infrastructure where the Group had developed
strengths in. The Group has recently been focusing on such projects and has
three ongoing projects. The Group faces lesser competition for such projects.
There are 4-6 tenderers on average for such projects, as compared to more
than 10 tenderers for other kinds of projects. The skillsets required for such
commuter infrastructure projects are different and include effective and prudent
project management and cost controls. The Group is able to control costs as it
has sufficient internal resources with headcount of approximately 800.
While the Group has a substantial orderbook, the Management is unable to
predict the future stream of projects. The potential impact of the trade tariffs
imposed by the US is also unclear currently. Material prices may increase as a
result of the tariffs. For ready-mix concrete and reinforcement steel bars, the
project contracts will typically allow for fluctuations in their prices. But there is
no such provision for other materials. The Management can only try its best to
factor in any potential increase in material prices when tendering for projects.
As for profits, in order for the Group to double its profits, there will be a need to
double its revenue. This will not be possible in the next one to two years. The
Management will try its best to improve profits incrementally.

Looks like they are able to tender at a higher price due to the weaker competition, and thus push higher margins.

Seems like these are the Cycling Path Network related projects, which most ending in 2025.

Wonder if the gov / LTA would be releasing more of these tenders in their pipeline

[edragon]

Thanks @¯|_(ツ)_/¯.

From the AGM minutes, this may be relevant:

Question : The Group had stellar gross profit margins and record profit in FY2024. Is this
the expected future trend? Is there a road map for the Group to double its profit?
Answer
(Mr Or Toh Wat)
: The Group’s profit margins fluctuate based on the types of work carried out and
the timing of the projects. During the COVID-19 pandemic, many companies in
the construction industry suffered. However, in the last two years, OKP secured
certain projects for commuter infrastructure where the Group had developed
strengths in. The Group has recently been focusing on such projects and has
three ongoing projects. The Group faces lesser competition for such projects.
There are 4-6 tenderers on average for such projects, as compared to more
than 10 tenderers for other kinds of projects. The skillsets required for such
commuter infrastructure projects are different and include effective and prudent
project management and cost controls. The Group is able to control costs as it
has sufficient internal resources with headcount of approximately 800.
While the Group has a substantial orderbook, the Management is unable to
predict the future stream of projects. The potential impact of the trade tariffs
imposed by the US is also unclear currently. Material prices may increase as a
result of the tariffs. For ready-mix concrete and reinforcement steel bars, the
project contracts will typically allow for fluctuations in their prices. But there is
no such provision for other materials. The Management can only try its best to
factor in any potential increase in material prices when tendering for projects.
As for profits, in order for the Group to double its profits, there will be a need to
double its revenue. This will not be possible in the next one to two years. The
Management will try its best to improve profits incrementally.

Looks like they are able to tender at a higher price due to the weaker competition, and thus push higher margins.

Seems like these are the Cycling Path Network related projects, which most ending in 2025.

Wonder if the gov / LTA would be releasing more of these tenders in their pipeline

I suppose the pressure is on the gov/LTA. One of these riders I met recently told me, he & his wife have had a wonderful life driving these vehicles around Singapore and can even go into the MRT trains for Island wide enjoyment.