Towards Financial Freedom
OKP - 1Q13 earnings below expectations
OKP's 1Q13 PATMI was lower 22.2% y-o-y at SGD2.4m, which was below our estimates. This was largely due to higher subcontracting costs incurred, higher government levies and salaries. The decline in PATMI was despite the 28.4% y-o-y increase in revenue to SGD32.0m as more projects were in the active stages of construction. Its higher order book of SGD393.5m would keep it busy till 2015, but cost pressures remain.
- Maintain NEUTRAL, lower TP to SGD0.47 (previously SGD0.56),pegged to 6.5x P/E (ex-cash). Its strong balance sheet (net cash positionof SGD53.6m or SGD0.22/share) as at end 1Q13 puts it in a good position to tender for new projects. We lower our FY gross margin assumptions, as 1Q13 margins were lower than expected. As a result, our FY13 PATMI estimate is SGD11.2m (from SGD15.4m)). Maintain NEUTRAL, as we hold the view that margins are likely to continue to face compression, even as the outlook is positive with the government's plansto enhance infrastructure.
- Order book continues to grow. OKP was able to secure more projects, bringing its order book to SGD393.5 (compared with SGD376.6m a quarter ago), with projects expected to last till 2015. Having always been a key player in the public infrastructure space, OKP aims to retain this market position, while looking to expand into other sectors such as O&G and building construction. Its JV for the development of a residential project at Amber is still incurring losses, although OKP only has a 10% stake.
- Cost pressures to remain. COGS increased due to higher subcontracting costs and higher labour costs. Higher sub-contracting cost was mainly due to its work for the Anguilla Park project. Sub-contracting works for this project accounts for 30%-40% of the total sub-contracting costs incurred by the Group on the whole. This project is expected to be completed in September 2013. Management indicated that there might be another round of salary adjustments in 2Q, this time, for its engineers and higher management staff.
Source: OSK
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