OKP Holdings' gross margins dipped to 15.1%

Blame it on tighter labour rules.

According to OCBC Investment Research, 1Q13 revenue was 28.4% higher YoY but it saw a steeper than expected dip in gross margins from 21.0% to 15.1% over the quarter. As a result, 1Q13 PATMI came down 22.2% YoY to S$2.4m, which was below OCBC expectations and consensus estimates. 

"Management indicates at margin pressures from increased subcontracting and labour costs due to more restrictive labour regulations from authorities and increased competition to hire and retain engineers," said OCBC.

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Looking ahead, we see softer gross margins in the vicinity of 15%-20% for OKP as it continues to face significant cost-side pressures now ubiquitous for major players across the construction sector.

Order book fairly healthy. That said, OKP continues to have a fairly healthy order book at S$393.5m as at 30 Apr 2013, as the group benefits from significant experience in public-sector construction and maintenance projects with a good reputation for on-time delivery.

In 2013 to date, it won two contracts from the PUB: first, a S$6.7m contract for the dredging of Sungei Api Api and second, a S$10.2m contract for the improvement of roadside drains, mainly involving the construction of box drains/entrance culverts in the Joo Chiat District.

MRT contracts a source for new contracts. In addition, OKP intends to compete for contracts related to the new MRT lines ahead which management views to be a strong source for construction demand. For this purpose, the group indicates that it has found an established foreign partner with which it intends to jointly tender for contracts.