For years, OKP Holdings 5CF has grown its business by constructing and maintaining roads so that cars, buses and trucks can roll smoothly from one point of the island to another. Over the past year, OKP has won a bigger share of contracts serving another mode of transport: the humble bicycle.
Last August, the company won contracts worth $188.3 million from the Land Transport Authority (LTA) to build a new cycling path network in seven towns island-wide: Geylang, Hougang, Kaki Bukit, Marine Parade, Potong Pasir, Sengkang and Serangoon.
That contract was part of LTA’s plans to have a 1,300km network of cycling paths by 2030, up from 530km last January, to support the growing popularity of cycling as a sport and transportation mode. Cycling paths are also part of the government’s effort to improve the so-called “commuter infrastructure” by providing a denser network of walkways and dedicated cycling paths connecting key nodes such as train stations, neighbourhood centres and schools.
OKP’s momentum of winning contracts is carrying into the new year. On Feb 27, it won contracts worth $78.3 million to expand the cycling network at Central, Kallang, Bukit Merah and Bukit Timah. “There will be more,” managing director Or Toh Wat tells The Edge Singapore in an interview.
OKP has clinched contracts from other repeat customers too. Last October, it won a contract worth $11.7 million from PUB for drainage improvement works. In December 2023, it won another contract worth $12.7 million from LTA for ad hoc improvement of road-related facilities in western Singapore and another contract from PUB worth $14 million for drainage improvement works.
Most recently, on March 1, OKP secured yet another contract from LTA to rebuild footpaths worth $44.5 million and on March 25, the company picked up another contract from PUB for drainage works worth $17.7 million. With this latest contract, OKP’s net construction order book hit a record $660.4 million, to be fulfilled between now and 2027.
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Until last year, OKP was making headlines for the wrong reasons. In 2017, it was linked to a high-profile fatal construction accident when a viaduct collapsed, killing a worker and injuring 10 others. In May 2021, OKP, as the contractor, was fined $1 million for failing to take reasonable measures to ensure the safety of its workers, resulting in jail sentences for two employees. OKP subsequently took the consultancy it hired to design the viaduct to arbitration. Last March, OKP was awarded more than $43 million in damages, costs and interests.
Thanks to the verdict, OKP reported earnings of $44.6 million in FY2023 ended Dec 31, 2023, versus a loss of $1 million incurred in FY2022. Revenue grew by 36.3% to $160.4 million in the same period. Gross profit margin improved by 6.2 percentage points to 15.4%.
According to Or, some of his industry contacts were surprised that OKP was able to receive such a big sum from the arbitration. However, OKP’s management points out that the arbitration award covered costs incurred, earnings and interests foregone since the July 2017 accident. Smoothened out as a straight line over the past six years, the costs and earnings foregone would be about $7 million a year. “We just want to put things behind us and then just focus back on our core business,” he says.
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Without prompting, Or points out another line item in the FY2023 numbers that stood out — remuneration for the executive directors of the company increased from around $2.4 million in FY2022 to $10.7 million. Or explains that the jump came from a bigger earnings-pegged bonus stipulated under their existing service agreements that did not change after the accident.
As at Dec 31, 2023, OKP’s NTA per share was 54.66 cents, with free cash and equivalents totalling $81.7 million, up from $20.8 million a year earlier. In contrast, OKP had a market cap of $78.7 million.
With the one-off earnings bump, OKP has declared final and special dividends of 0.7 cents and 0.8 cents respectively, bringing FY2023 total dividends to 2 cents, up from 0.7 cents declared in FY2022. Some investors suggest that OKP could afford a higher payout for FY2023, given that the $43 million awarded from the arbitration award alone is the equivalent of 14 cents per share.
Daniel Or, OKP’s executive director, points out that the company consistently pays out dividends of at least 0.7 cents per year, even in FY2018 and FY2022 when it incurred an overall loss. The dividend yield, says Daniel, typically ranged between 5% and 6% a year, which he figures is “very decent”.
Mix of contracts
Is OKP holding back dividends to conserve cash for other specific purposes? Indeed, as OKP steps up its bid for more government projects, it believes a strong balance sheet will put it in good stead when the agencies award their contractors.
Management points out that as the projects are getting bigger, it requires a correspondingly stronger balance sheet to get a better chance at winning these contracts. A strong balance sheet also gives OKP more bargaining power with the banks. The company is aware that contractors have not had an easy time in the last few years. “That is why we are preserving our cash,” adds Daniel.
Besides having the balance sheet strength to show potential customers, does OKP have plans to generate other growth such as buying properties for investment or developing projects? The company, after all, is no stranger to both.
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OKP is at the tail end of two residential development projects. All apartments at the 74-unit Phoenix Residences and 84-unit The Essence have been sold. OKP is a minority partner in both of these developments.
Anticipating contracts would be harder to come by following the 2017 accident, in February 2018, OKP took a 51% stake in a nine-storey office building in Perth for A$43.5 million to generate a certain level of recurring income to beef up earnings even as revenue from its core business slows.
More recently, in January 2021, OKP, via a 51% held venture, acquired a shophouse at 35 Kreta Ayer Road for $11.3 million. In August 2021, it bought two adjoining freehold shophouses at Kampong Bahru Road for $12.38 million, again via a 51% venture. In FY2023, OKP’s investment properties segment generated a total rental income of $6.4 million, up marginally from $5.3 million.
According to Daniel, the company is not actively seeking more investment properties, as it prefers to be more opportunistic. “The prices are quite high right now,” he says, referring to shophouses that most recently transacted at around $4,000 psf versus the some $2,000 psf OKP paid for back then. Nonetheless, “if any opportunity arises, we have the means”, he adds.
New cost pressures?
As such, OKP’s core focus will be on civil engineering and infrastructure. The company’s management is upbeat that there will be a steady flow of construction projects it can bid for, which, besides cycling paths and the likes, will also include big infrastructure projects such as Changi Airport’s Terminal 5, where besides the terminal building, new connecting roads would also have to be constructed.
OKP will seek a mix of projects of varying sizes. Apart from big infrastructure projects stretching six to seven years or more, OKP has contracts with shorter time frames of between 18 months and three years. This means the company can better manage its resources and deploy its people in a more agile manner instead of dedicating large teams to undertake bigger projects that will take much longer to complete and bill.
Incidentally, OKP was less active in winning new projects just when the pandemic hit while raw material prices shot up and labourers vanished overnight. Many contractors, forced to deal with prolonged shutdowns and delays, faced ballooning costs and work stoppages. Some contractors even had to be replaced so projects would not grind to a halt. “We were also not spared,” says Or, referring to the contracts awarded before the pandemic that fetched lower margins.
The pandemic-induced cost pressures have since eased. However, OKP is bracing for another surge in costs due to the coming expansion of the two integrated resorts. Genting Singapore G13 said it will spend $6.8 billion to expand and upgrade Resorts World Sentosa. Las Vegas Sands Corp, which runs Marina Bay Sands, is spending $4.5 billion to expand, including a fourth hotel tower block, an entertainment arena, and additional exhibition and retail space. “The industry will again face a bit of a shortage of manpower,” rues Or.
Nonetheless, OKP’s management believes that the construction industry, with the pandemic still fresh on their minds, will be more careful when bidding for contracts.
That is why, putting the viaduct accident behind it and coupled with a brighter demand outlook, OKP is ready to bounce back stronger. Will FY2024 turn out to be a better year for the company? “Based on what we see, we are confident,” says Daniel.
