OKP Pros and Cons Analysis

Pros

  • Acceptable moat – only listed road specialist, many years of experience and track record
  • Strong financials, FCF, ROE, margins
  • Good dividend yield
  • Even though undertaking mostly government projects, margins are high – shows management competence
  • China Sonangol catalyst (construction of condos, overseas opportunities, can be acquisition target)
  • Oil and gas industry catalyst
  • Property development catalyst
  • Overseas JV opportunities -$6.75 mil set aside for overseas business expansion
  • Won huge project for CTE widening from LTA – shows competency and trustworthiness of the company
  • Can acquire other smaller companies with cash hoard
  • MRT contract catalyst
  • Lots of awards won and in August 2010,  OKP made it to the Forbes Asia’s ‘Best Under A Billion’ List
  • Highest order book in company history till 2014 and winning lots of contracts of late
  • Construction expenditure by government usually increases during downturn
  • Or Kim Peow, 76 years old and owns 55% of company. Potential general offer by China Sonangol which owns 14%?
  • High success rate in tendering – 94% success rate in 2010
  • PUB said it will commit $750m over the next five years to fight flooding. OKP won a Zion Rd canal contract in Aug 2011 so it has experience in this and can win more contracts.
  • Opportunities like N-S expressway ($6-7 bil – starting 2013), Bukit Brown 4-lane dual carriageway (~$50 mil each package – 2013-2016), road around sports hub (<$1.3 bil – by 2014), widening/improvement of existing expressway.

Cons

  • Competition from Singapore and overseas companies but with respect to road works and construction – however, even though there’s keen competition, each company will get a slice of the billion dollar pie
  • Relying too much on government (especially LTA) for projects can be a double-edged sword
  • Road development cannot go on increasing as stated in LTA masterplan – however, can be mitigated by property development, overseas joint venture and expansion that the management is currently looking into
  • Exposure to labour shortage and foreign worker levy increase – OKP said it’s managing well and can pass on increase to customer
  • Price fluctuations and availability of construction materials – for LTA projects, there’s a clause to claim the rise in material costs
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