OKP Holdings

[dzwm87]

my quick analysis on OKP..

please add on any additional findings or questions..

hopefully can uncover more about this company.. looks pretty decent

[karlmarx]

impressive. thanks for putting the data together. are you an analyst?

looking at your report, i'm surprised by how high some of the contract values are.

also, okp seems to enjoy recurring business from the government.

it looks good but price seems a little steep for me. i might be interested when it is trading closer to book value.

by the way, which do you think offers more value at the moment, okp or lian beng?

[freedom]

Thanks for sharing your analysis.

I noticed that for 9M11, although the profit was beyond FY10 level, the operating cashflow was significantly lower than its profit as well as operating cashflow of FY10, FY09.

another question is about whether they can maintain their net profit margin. To me, the margin of 2011 was a bit off the chart.

[Musicwhiz]

my quick analysis on OKP..

please add on any additional findings or questions..

hopefully can uncover more about this company.. looks pretty decent

Very good analysis, thanks very much for sharing it!

Same sentiment as freedom on the net margin for 9M 2011 - why is it 19%?? I think if you look at the history of operating cum net margins for OKP, it's been pretty erratic and it would seem that the most recent high margins are more of a one-off anomaly than a consistent trend. I was just wondering if the industry is so cyclical that margins can fluctuate as such? It would be good if you could find out the normalized margins for OKP, perhaps by digging further back or finding a competitor to benchmark against.

Another point I'd like to make is the lumpy contractual nature of their projects - how can this be smoothened to make revenue and cash flows more predictable? I have some experience on this as Boustead also has a Real-Estate Solutions Division which experiences lumpy Design & Build contracts, but they are solving it slowly by venturing into Design, Build and Lease projects. If OKP is so focused on construction, then it seems the lumpy nature of its earnings and cash flows will persist.

Also, how can quick ratio be so much higher than current ratio? I note that OKP does not have prepayments or inventory so why is quick ratio so different from current ratio? Care to explain, please?

For FCF, it would seem FY 2009 and 2010 saw spikes in FCF to the tune of $30 million+, while for other years this has moderated somewhat. Any explanation for the lumpy FCF numbers?

ROE does seem impressively high for OKP considering it does not have significant debt. Just curious as to who their competitors are and are barriers to entry high for this industry? How do they maintain such high ROE? Is it through efficient allocation of capital or some other mechanism?

Thanks!

[weijian]

hi DZWN87,
wow, doesn't look like a 'quick' analysis to me, with so many details, unless you have some macro software to pull the data from multiple sources and summarize the figures.. Thanks! Btw, ru vested in OKP?

A friend once recommended OKP to me, but i havent had a chance to do any analysis..From your report, some of the numbers like ROE, net margins and FCF looks interesting enough for me to maybe start looking at it soon..

2 issues:
(1) Since CSI and OKP are related, and CSI awards its contracts to OKP, it is a related party transaction and from CSI pt of view, there is a slight conflict of interest
(2) There are alot of positives flagged with little negatives in this report. Have you done any risk assessment?

[mrEngineer]

my quick analysis on OKP..

please add on any additional findings or questions..

hopefully can uncover more about this company.. looks pretty decent

Looks like a paper done for one of the universities investment module. Well done. Keep up the good work.

[dzwm87]

karl marx: Nope, not an analyst. I'm still a honors uni undergraduate - doing my internship now so have the time to do so.
I didn't analyse on Lian Beng though its spin off event might attract me to do so soon. I'm pretty much attracted to special situations too like spin offs (Fragrance Group is another to watch for in 9 months time). But based on what I know, Lian Beng seemed to have attracted much investors' attention (record high order book) while OKP seemed to have relatively lesser - plus OKP seem to be down a little due to lower revenue contribution from its contract.

music whiz: haha, quick ratio was a miscalculation. got too excited while crunching the numbers.

weijian: nope, not vested in OKP but might be in future, depending on how the analysis goes

regarding OKP: think the inconsistency of margins & lumpy earnings might be a downside but given its record high order book, revenue should come in pretty consistent till 2014? (same case as Lian Beng)
actually I will see the property development as a downside too given today's bearish sentiment on the sector - hopefully the spare cash won't be whacked entirely into props.

OKP's info is pretty transparent - their website has Q&A and archive of analyst reports - so maybe you guys can get more info via their IR portal.

Thanks for all the questions, I'll look into it & further build on my analysis. Update again once I have gotten the required info.

[FFNow]

Very good analysis, dzwm87! Thanks for that.

I've seen that OKP has been relying quite a lot on LTA for contracts. That's kind of risky. What do u think?

[VIChris]

Hi dzwm87,
thanks for the analysis, but trying to understand, on your last page of analysis on Debt per share basis, what is the objective of this values trying to indicate since the gearing ratio of this company is near zero?

FFNow, if you are aware, government projects are always safe. These projects are unlikely to be cancel as budgets has been set aside.
Unlike commercial one which is affected by economic conditions, project s can be cancel.

If you noticed, OKP has strategically positioning themselves in high net margin projects, ranging from extending their capability from government projects to Oil & Gas, property development, etc.

The intrinsic value of this company at zero growth is still higher than the current price.
Nevertheless, this is only my own personal opinions.

My 2 cents.

[weijian]

hi VIChris,
i think FFNow may be referring to that OKP's main customer is LTA, so there is little diversification in terms of customer base.