OKP Holdings - DBS Research 2017-03-15: Stable road

OKP Holdings - DBS Vickers 2017-03-15: Stable road OKP HOLDINGS LIMITED 5CF.SI

OKP Holdings - Stable road

  • Leading infrastructure and civil engineering company.
  • Healthy net orderbook; steady industry outlook with strong project pipeline.
  • 60% of market cap backed by net cash; founder owns majority stake. Possibility of privatisation? Fair value of S$0.45, based on 11x FY17F PE, in line with peers.



The Business 


Leading home-grown infrastructure and civil engineering company. 

  • Started by Founder and Chairman, Mr Or Kim Peow in 1966, OKP specialises in the construction of roads, bridges and other infrastructures. 
  • Most of its projects are from the public sector, awarded by Land Transport Authority (LTA) and Public Utilities Board (PUB).

Healthy net orderbook; steady industry outlook with strong project pipeline. 

  • OKP’s current net orderbook is about S$330m, with project pipeline extending till 2019. 
  • The Building and Construction Authority (BCA) estimated the total construction contracts to be awarded in 2017 to be between S$28bn and S$35bn, with about 70% from the public sector, higher than the S$26.06bn contracts awarded in 2016. Upcoming major projects include the North-South Corridor and construction of new MRT lines.

Strong net cash position; founder owns majority stake. Possibility of privatisation? 

  • Mr Or Kim Peow and family own about 60% stake in OKP. Given 60% of its current market capitalisation is backed by net cash, which works out to be 23 Scts per share, there is no necessity to tap the equity market to raise funds. We would not rule out the possibility of the founding family privatising the group.


The Stock 


Fair value of S$0.45. 

  • We believe a 11x FY17F PE valuation is fair, based on peer average for the construction stocks listed on SGX. 
  • TP works out to S$0.45 per share, which translates pto an upside of 15% from the current price. To be conservative, we assume no new contract wins in our forecasts. 
  • Dividend yield is attractive at prospective yield of about 4%.

Risks: 

  • Shortage of manpower, cost overrun for projects.




NOT RATED 
Return *: 2 
Risk: Moderate 
Potential Target 12-mth* : 12-Month S$0.45 (15% upside)




Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2017-03-15
DBS Vickers SGX Stock Analyst Report NOT RATED Maintain NOT RATED 0.45 Same 0.45



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