OKP reported a solid set of 4Q numbers and produced record earnings (S$26.6m) in FY11. 4Q’s revenue (S$23.2m) declined 21.6% due to completion of some big projects. But as it wrapped up on CTE, the higher margins of the design and build contract were evident on its earnings. On a full year basis, FY11’s gross and net margins improved to reach 39% and 24% respectively. Given its improved track record as a design and build player, and the government's commitment to several infrastructure projects, we believe OKP’s near-term prospects are healthy. The group has also built up a strong balance sheet capable of seizing suitable growth opportunities. Possible growth avenues include diversifying into property development and seeking out acquisitions to add to existing construction capabilities. Applying 7.5x P/E peg on FY12 earnings, we derive a fair value estimate of S$0.75, maintain BUY.
Excellent finish brings FY11 profit to record high. OKP reported a solid 4Q and rounded up a good year for the group. 4Q’s revenue (S$23.2m) fell 21.6% YoY as the group finished off major projects. But as the group wrapped up its CTE project (design and build contract), the higher margins also came through on gross and net profits. Last quarter’s gross profit (S$15.0m) and net profit (S$9.5m) improved 50.2% and 107.7% YoY respectively. On a full year basis, gross and net margins were also helped by the strong 4Q and reached 39% and 24% respectively. Overall, OKP’s record earnings for FY11 (S$26.6m) were 18% above our estimate and 21% above consensus and it announced a final dividend of S$0.03/share, or yield of 4.6%.
More projects down the road. The CTE contract played a big part in helping OKP achieve this performance and the group has another similar contract for work on TPE on its order book. Given successful completion of CTE, we believe the group is well placed to add more of the same in future. On top of road projects (such as expansion of KPE and construction of New Lornie Road) likely to be awarded this year, the government will spend ~S$750m over the next five years on drainage projects. Therefore, we believe OKP face fairly healthy near-term prospects and they should be able to replenish their order book (~S$248.6m).
Looking for growth. On top of what it is already capable of, we believe OKP’s balance sheet (c.S$91m net cash) gives it opportunities for further growth. Property development is a possibility (as the group has signaled its intent in last year’s EGM) given cash balance and China Sonangol partnership. We also understand from management that the group will be evaluating acquisitions to add to its existing construction capabilities.
Maintain BUY. We continue to like OKP’s track record, exposure to government spending and growth possibilities. Applying a 7.5x P/E peg to FY12 earnings (adjusted for higher margin assumptions for different project mix), we derive a new fair value of S$0.75 (previous FV S$0.64), maintain BUY.
More projects down the road. The CTE contract played a big part in helping OKP achieve this performance and the group has another similar contract for work on TPE on its order book. Given successful completion of CTE, we believe the group is well placed to add more of the same in future. On top of road projects (such as expansion of KPE and construction of New Lornie Road) likely to be awarded this year, the government will spend ~S$750m over the next five years on drainage projects. Therefore, we believe OKP face fairly healthy near-term prospects and they should be able to replenish their order book (~S$248.6m).
Looking for growth. On top of what it is already capable of, we believe OKP’s balance sheet (c.S$91m net cash) gives it opportunities for further growth. Property development is a possibility (as the group has signaled its intent in last year’s EGM) given cash balance and China Sonangol partnership. We also understand from management that the group will be evaluating acquisitions to add to its existing construction capabilities.
Maintain BUY. We continue to like OKP’s track record, exposure to government spending and growth possibilities. Applying a 7.5x P/E peg to FY12 earnings (adjusted for higher margin assumptions for different project mix), we derive a new fair value of S$0.75 (previous FV S$0.64), maintain BUY.
No comments:
Post a Comment