OKP's gross profit margin to shrink below 22%

Blame it on intensed competition and growing manpower cost.

According to OCBC Investment Research, OKP’s extensive experience in public-sector construction and maintenance projects and its reputation for on-time delivery has secured it an order book of around S$377m (as of Feb), which stretches till 3Q 2015.

However, OCBC expects that, going forward, OKP gross profit margin will shrink below the 22% it registered for FY12, due to increasing manpower costs and growing competition.

Here's more:

To recap, 4Q12/FY12 results were generally in line with our expectations. While FY12 net income of S$104.5m (-5% YoY) was 5% lower than our estimate, PATMI of S$12.4m (-53% YoY) was 6% higher than what we expected. The lacklustre results were due to a weak economy, price competition and climbing labour costs.

OKP declared a first and final dividend of 1.5 S cents/share, lower than the 2 S cents that we and the street had expected. FY12 dividend translates into a yield of 2.9%. We believe that management is conserving cash to increase its flexibility to tender for government projects.

Management indicated that it has found an established foreign partner with which it can jointly compete for work on the new MRT lines, an attractive source of construction demand over the next few years.

Having noted that there is increasing foreign competition in the MRT job space, management also expressed that demand for other public construction work in Singapore is strong enough to sustain OKP’s revenues for at least the next few years, even if it does not win any MRT contracts.

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