OKP

OKP: 3Q12 results weaker but inline with OCBC’s expectations. Revenue at $28.5m, +12% yoy, due to lower contribution from both the construction and maintenance segments. The lower construction revenue was due to relatively lower % of revenue recognized from a newly awarded design and build related construction projects during 9M12. The lower maintenance revenue was due to the completion and substantial completion of existing projects, coupled with a reduced % of revenue recognized from a few newly awarded maintenance projects secured during 9M12. Gross margins fell to 22.6% from 32.4% yoy, largely due to lower profit margins for new and on-going projects and cost overrun on some sewer related projects, arising from unfavorable ground conditions which required additional unforeseen works. Net profit at $2.4m, -50% yoy, due to lower gross margins and higher operating expenses (+29% yoy at $3.7m). Orderbook stands at $346.1m, vs FY11 revenue at $110m, with visibility stretching till 2015. In Jun ’12, the group made its maiden foray into property devt via a $0.1m invmt for a 10% minority stake in property devt co, CS Amber Devt. Mgt notes with the pipeline of transport infrastructure projects, it will tender actively and continue to build on its civil engg core competencies in the public infrastructure space; says govt projects will continue to be a key part of its business. But notes labor shortage and higher labor cost are key risks. OKP trades at 1.8x P/B. With 9M12 EPS at 2.8cts (-52% yoy), this translates to the stock trading at annualized 14.3x P/E. OCBC keeps at Hold but has its TP $0.53 under review pending analyst briefing.