Falling Knife of the Week: OKP Holdings

Construction firm OKP Holdings Limited (SGX: 5CF) is this week’s Falling Knife after falling close to 5% from last Friday to Thursday; it closed at $0.315 yesterday.

OKP is a local infrastructure and civil engineering company that operates in two core business segments: Construction and Maintenance. It specialises in the construction of airport runways and taxiways, expressways, flyovers, vehicular bridges, urban and arterial roads, airport infrastructure, and oil and gas-related infrastructure for petrochemical plants and oil storage terminals.

The firm has been around since 1966 when it was established by Mr Or Kim Peow.

On 24 February 2014, the company announced its full year results. For the 12 months period, revenue dropped 23% year-on-year to S$128.3 million while net profit slumped 61% to S$4.8 million. The gross profit margin and net profit margin for the year were at 9.8% and 3.7% respectively. Just a year ago, these profit margin figures were at much higher levels of 22.4% and 12%, respectively. Such steep falls might be a sign that the firm is facing stiffer competitions from many fronts.

For the year, OKP’s diluted earnings per share came in at 1.56 Singapore cents, a big change from the 4.03 Singapore cents per share it had earned in 2012. As of 30 December 2013, OKP had a cash balance of $39.9 million while its total debt stood at S$2.7 million. The return on equity for the year was at 5%, a fall from 12.8% a year ago. Looking at the cash flow statement, for 2013, OKP had used up net cash of S$229,000 for operations while in the previous year, S$7 million was spent.

Group Managing Director, Mr Or Toh Wat, commented that the year was a challenging one as competition intensified while rising labour costs continued to affect the margins. The construction outfit remains prudent in its business operations and will prospect actively for new projects.

OKP declared a final dividend of 0.3 Singapore cents. This translates to a dividend yield slightly shy of 1%. The firm is currently trading at 20 times its latest earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.