OKP: 2Q13 Results Hit By Lower Margins
(NEUTRAL, SGD0.41, TP: SGD0.35)
OKP recorded 2Q13 PATMI of SGD0.7m (-77.0% y-o-y), even as revenue was 27.5% stronger y-o-y at SGD30.1m, due to higher costs incurred on a project. Gross margins are expected to remain low until the project is completed towards end-3Q13. With our margin assumptions lowered, we adjust our estimates and arrive at a TP of SGD0.35. OKP has strong balance sheet, with net cash of SGD0.15/share.
Gross profit margin dips. OKP achieved gross profit margin of 8.2% in 2Q13, compared with 24.3% in 2Q12. This was largely due to the lower margins at its Anguilla Park construction project. This project was at the active stages of construction, resulting in higher sub-contracting costs. As the project nears completion, the amount of sub-contracting is likely to taper off. Meanwhile, the increase in headcount contributed to higher staff costs, which also dragged down gross margins. We think gross margins will remain low in 3Q13, and may only start to pick up slightly from 4Q13.
Healthy balance sheet supports orderbook growth. OKP’s orderbook currently stands at SGD428.8m, of which SGD221.3m is expected to be recognized between 2H13 and 2015. Its strong balance sheet (net cash of SGD0.15 per share) puts it in a good position to tender for new projects and boost its orderbook.
Outlook positive but competition keen. There is a pipeline of public sector projects that OKP can tender for. However, competition is stiff and this will likely compress margins. Management indicated that it would continue to tender for projects, focusing on the Company’s core business of construction and maintenance activities.
Lower FY13 earnings estimate and TP; NEUTRAL. Given the significantly lower 1H13 gross margins, we also lower our FY margin assumptions. We keep our FY13 revenue estimate of SGD129.3m, but lower our PATMI to SGD4.9m. Pegging its earnings to 6.5x P/E (ex-cash), we arrive at a lower TP of SGD0.35 (from SGD0.47).
Publish date: 31/07/13