- OKP Holdings has faced difficulties in the past due to the fatal accident at their project in 2017.
- With respect to the accident, OKP succeeded in the Arbitration against the design consultant and awarded S$43,792,421.96.
- Also with respect to the accident, they were not actively pursuing government tenders from 2017-2020. Unlike majority of Singapore’s construction industry, they avoided executing projects that were badly affected by cost increases arising from the pandemic.
- OKP has regained momentum in new contract wins worth $384.5mil since Nov 2022.
It has been a long time since I covered OKP Holdings (SGX:5CF). In fact, it was 2019 when I believed that they have the ability to overcome their difficulties. With the dust settled behind them and armed with a huge cash holdings, they are getting back on its feet.
A Recap
In 2017, there was an accident at their project where an uncompleted viaduct along Upper Changi Road collapsed. One worker died and 10 others were injured.
Or Kim Peow Contractors, a subsidiary of OKP Holdings, was found guilty in failing to take necessary measures to ensure the safety of workers casting a deck slab. They were fined $1 million. Their project director and engineer were sentenced to 13 and 11 months’ jail.
OKP’s share price fell from $0.40 to $0.20 when the accident happened. Share price has been hovering around this level since then.
Light At End Of The Tunnel
From 2017 to 2019, I believed that with their safety record, OKP were unable to secure many government tenders. These tenders have strict evaluation criteria on safety records.
With a strong balance sheet, OKP shifted their focus to residential developments. Revenue fell during this period due to lower contributions from construction segment. Revenue from maintenance segment is still relatively stable.
Then came Covid.
Due to the lower ongoing construction projects, they were not that badly affected by the increase of construction costs like their peers. Those companies that bidded for projects at very competitive prices in 2018/2019 are still feeling the impact from the pandemic.
Huge War Chest
In a turn of events, recently consultancy firm CPG Consultants has been ordered to pay Or Kim Peow Contractors $43.8 million over the collapse of the viaduct.
This increased their cash holdings from $29m to $71m. This translates to a 2.7x difference, their cash on hand per share rose to $0.21 (current share price $0.21 as of 16/9/23). This gave them a huge war chest to invest in their upcoming projects.
New Project Wins worth $384.5mil
Talking about their projects, their 3 latest awarded contracts were:
- Construction of a new Cycling Path Network (“CPN”) in seven towns islandwide worth S$188.3 from the Land Transport Authority
- Maintenance of roads, road-related and commuter-related facilities along South East sector worth S$95.9 million from the Land Transport Authority
- Commuter infrastructure enhancement works at new MRT stations, at island-wide locations worth S$100.3 million from the Land Transport Authority
2 of the 3 projects are related to cycling paths and commuter networks, which OKP has a good track record. With LTA announcing new cycling paths as part of the Islandwide Cycling Network programme, OKP stands a good chance to be the frontrunners to secure more related projects.
What Now?
The universe works in mysterious ways. OKP has now emerged stronger after Covid and is getting back on its feet.
From their annual report, we are seeing improvement in their topline but net profit fell.
Their most recent 1H23 results also showed improvement in topline revenue but net profit excluding the proceeds from the arbitration is still the same. This means that they are still areas to improve on in terms of profitability of their projects. I opined that their new contract wins will translate to better bottom line growth as inflationary and pandemic related cost should have been taken into account during the recent tenders.
Therefore, I see huge upside for OKP in terms of value creation for shareholders. There is still much to be done, But on the back of an improved competitive position, high cash levels and a depression of valuation multiples due to its past events. This makes me quite upbeat on their future performance.
Cheers
Thanks for reading, for more related post –
2019 – OKP Holdings (SGX:5CF) – This, Too, Shall Pass
Case Studies on Singapore Construction Industry
Case Study: Is Singapore’s Construction Industry in Trouble? (Part 1)
Case Study: “New Normal” for Singapore’s Construction Sector