OKP struggles to compete with moguls

But $385.9m orderbook is confidence booster.

According to OCBC, OKP’s robust order book (S$385.9m as at 1 Nov) gives the group excellent revenue visibility over the next two years.

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Its extensive experience in public-sector construction and maintenance projects and its reputation for on-time delivery has secured OKP a steady pipeline of work that currently stretches to 3Q 2015.

Still, OKP has found it difficult to compete with bigger, foreign rivals for work on the new MRT lines, an attractive source of construction demand over the next few years. OKP is now exploring possible tie-ups with other firms to improve its chances of securing such work.

But management stressed that the projected demand for other public construction work in Singapore is strong enough to sustain OKP’s revenues for the next three to five years, at least, even if it fails to win any MRT jobs.

However, we expect its gross profit margins to shrink from 20-25% now to <20% in future, due to the increased competition from foreign firms and rising manpower costs.

OKP’s first foray into property development in June (through a 10% stake in a China Sonangol Group subsidiary to redevelop the former Amber Towers site) is an encouraging move to supplement its main construction business.

Given OKP’s cautious approach so far, however, we do not expect property development to contribute significantly to the group in the near future.