OKP Holdings Ltd Launches Its First Residential Development in Singapore: What does it mean for Its Shareholders?

Yesterday, OKP Holdings Ltd (SGX: 5CF) and China Sonangol Land had jointly launched their freehold residential development Amber Skye, located at 8 Amber Road,

Featuring 22 storeys, the 109 unit Amber Skye development offers apartment types from 527 square feet one bedroom units to 2,982 square feet four bedroom units. There is also a 5,177 square feet Grand Villa, occupying two floors and complete with a personal basement consisting of 2 private car park lots. Six penthouse units are also available. All these sit on a site area of 40,708 square feet.

The prices for Amber Skye are expected to start from $1,800 per square foot, with the expected Temporary Occupation Permit date falling on 30 June 2017.

Mr. Or Lay Huat Daniel, Executive Director of OKP Land, the subsidiary of OKP Holdings responsible for Amber Skye, is upbeat about the project. He commented:

“Marking our foray into the property development business, Amber Skye promises to be an exciting property offering quality high-rise residence while benchmarking luxury living. We are optimistic about the launch of Amber Skye.”

Small but important

If all that sounds good, then investors might be disappointed to know that OKP Holdings only holds 10% of the development.

OKP has extensive experience in constructing urban and arterial roads, expressways, vehicular bridges, flyovers, and airport infrastructure. It is also an old hand at the maintenance of roads and road-related facilities. It is however, very green in the property development arena.

So, given OKP Holdings’ small involvement in property development and its inexperience in the area, why are we even talking about this?

Declining Core Business

That’s because OKP’s core business in the construction of public infrastructure is facing intense competition partly due to the entrance of overseas players. The rise in foreign worker levies in Singapore is not helping the company either.

Here’re some figures for context: Between 2009 and 2013, OKP Holdings’ revenue had dropped slightly from S$130 million to S$128 million but yet its net profit had collapsed by almost two thirds from S$14 million to S$5 million. OKP Holdings’ latest results for the first half of 2014 had shown no sign of improvement either as its profit got slashed by 54%. Such results have caused OKP Holdings’ shares to slump by 62% over the past five years. In comparison, the Straits Times Index (SGX: ^STI) is actually up 26%.

With a declining core business, OKP Holdings has to venture outside its comfort zone. The Amber Skye project, though small for the company, does have its usefulness: The small stake is precisely what can allow the company to ‘test the waters’ and gain experience without having to risk large amounts of resources. When OKP Holdings has gained a surer footing in the property development space, it can then start taking on larger stakes in similar projects or even go about it alone.

Besides having a 10% stake in Amber Skye, the company had also taken on a separate 10% stake last August to co-develop an executive condominium in the Western part of Singapore.

Despite the potential benefits of these projects, the firm has to be careful to not over-extend itself as property prices have been in the doldrums lately, following the many cooling measures brought on by the government; an infographic from The Straits Times shows this clearly. The situation would likely not reverse itself any time soon either as the Monetary Authority of Singapore had said two months ago that it is still too early to ease back on the curbs.

OKP Holdings is trading at S$0.29 currently and sports a historical price-to-earnings ratio of around 29.

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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.