OKP SP / 5CF.SI
On track for a record year on solid contract wins and widening margins
Construction
Gross margin expanded 6.8 percentage points to 37.6%. Management linked the relatively high margin to the projects won over the past three years, while the results also highlighted better execution and project-stage profit recognition. In-house manpower is the principal cost driver, with relatively limited subcontracting. We therefore view workforce productivity and utilisation as central to sustaining profitability.
First-half earnings are ahead of a simple half-year run rate, while operating cash flow rose 84.0% to S$32.2m. This supports reinvestment alongside the 0.6-cent special interim dividend. The subsequent S$21.0m operational property acquisition, with potential accommodation for up to 800 workers, fits OKP’s reliance on its own workforce.
The S$797.9m backlog extends through 2031 and represents approximately 3.6 times FY25 revenue. Beyond management’s positive outlook, public plans for about 55,000 BTO flats over 2025–2027, a 1,300km cycling network and Friendly Streets in all towns by 2030 point to sustained demand for neighbourhood connectivity. These programmes align with OKP’s commuter infrastructure expertise; tender opportunities and margins will depend on competition and execution.
We reiterate our OUTPERFORM rating with a lower 12-month DCF-based target price of S$1.22, using a 12.0% WACC and 2.0% terminal growth rate. This implies 100.3% upside. The record order book supports earnings visibility, while our forecasts incorporate the operational property purchase without assuming dormitory cost savings.
Key downside risks include (i) margin pressure from heightened competition and input cost inflation; (ii) slower-than-expected ramp of new contracts or projects; and (iii) execution risk on overseas expansion plans.
