3Q revenue was up 11.8% YoY to S$28.5m, as some of its design and build related construction projects progressed to the more active construction phase (i.e. increased billings). This was somewhat offset by lower revenue from the maintenance segment. OKP's healthy order book of S$346.1m, which is expected to last till 2015, would help maintain its growth. We believe OKP's expertise in the construction of transport infrastructure places it in a good position to benefit from the government's pipeline of projects in this sector. Given that the projects in FY12 are generally of a lower margin compared with those in FY11, we are estimating earnings of S$11.4m for FY12 and S$15.4m for FY13. OKP is currently trading at 7.2x FY13 P/E on an ex-cash basis (peer average: 6x). Hence, we downgrade our recommendation to NEUTRAL with a TP of S$0.55, taking into account our net cash estimate, and ascribing a P/E of 6.5x.

Outlook remains positive, backed by the pipeline of government projects. Although competition remains keen in this sector, OKP has built up its sound reputation in infrastructure and civil engineering works. This would help give it some advantage over its competition. Growth would still be driven by public sector projects, as OKP continues to explore opportunities in the private sector (property development and the oil and gas sectors). In addition, as more on-going projects progress on to be in the active phase of construction in FY13, this would also help boost revenue growth.

Not too worried about loss from associate. OKP recorded a small loss from associate ($9,000) due to operating expenses incurred for a JV to develop a residential project at Amber (it's maiden property venture). We would not be too concerned with this loss as OKP only has a 10% stake in the JV.

Strong balance sheet. OKP has a strong balance sheet with net cash position of S$49.9m (or 16.3 S''/share) as at end 3Q12. This places it in a good position to tender for new projects.

 

 

Source: OSK