OKP Holdings' profits fell 22.2% to S$2.4m

Here's what to blame.

According to OCBC Investment Research, OKP Holdings' PATMI dropped 22.2% YoY to S$2.4m.

OCBC noted that 1Q13 EPS of 0.77 S cents was lower than consensus, forming 18% of its and 15% of the consensus FY13 estimates. The effective tax rate fell from 16.0% in 1Q12 to 13.2% in 1Q13 due to tax deductible purchases under the Productivity and Innovation Credit plan, which will apply through 2015.

Here's more:

OKP's 1Q13 revenue grew 28.4% YoY to S$32.0m but gross margin fell to 15.1% from 21.0% in 1Q12. While management has previously indicated that OKP's gross profit margin will shrink below the 22% it registered for FY12, the decline was greater than what we expected.

Speaking with management, we understand that the contraction in gross margin was chiefly due to increased subcontracting costs and labour costs. The latter includes higher costs for skilled labour, due to increased competition to attract and retain engineers.

Management is targeting to maintain gross margins at 15-20%.

To recap, OKP has announced two contracts YTD. The first is a S$6.7m contract awarded by PUB for the dredging of Sungei Api Api. The second is a S$10.2m contract, also awarded by the PUB, for the improvement of roadside drains.

The contract mainly involves the construction of box drains/entrance culverts in the Joo Chiat district. As of 30 Apr, OKP's gross order book remains healthy at S$393.5m, which is 12.3x 1Q13 revenue.