ON FRIDAY, OKP Holdings’ share price jumped 14.9% to 54 cents putting the company’s market value at $143 million. Although this still makes it a small cap stock, all could change in the year ahead. On the same day, DBS Vickers released a 19-page report on the company. Just last week (Sept 27-Oct 1), The Edge Singapore featured OKP in its Construction Boom Phase 2 story. The company, a civil engineering company which specialises in road infrastructure is affectionately known as the road builder because the bulk of its contracts comes from the LTA to maintain and build roads. DBS Vickers’ report says that the stock is worth 70 cents per share, or $185.5 million and has initiated coverage with a Buy recommendation.

A project known as DTL3, or Downtown Line 3 could give OKP a much higher profile. The initial contracts have already been called and OKP is believed to be bidding for a parcel known in the construction sector as C928. Unlike DTL2 or Downtown Line 2, the line that is being built along the Bukit Timah corridor, DTL3 is not a design and build project.

Companies vying for DTL2 contracts need to spend $2 million to $3 million to design the station and associated tunnels and for that reason many local contractors were locked out. With the exception of Lum Chang Holdings,Hock Lian Seng Holdings, Koh Brothers and Sembawang Engineering and Construction, the main contractors were Korean, Japanese, European and Chinese companies.

LOCAL CONTRACRORS EXCITED WITH DTL3
In DTL3, the designing will all be done by LTA and that has local players excited because they can just go straight ahead and build it. Also, packages are likely to be smaller, making it easier for local companies to handle. Most of DTL3 will be built using a TBM, a tunnel-boring machine. The LTA will be providing the TBMs which cost in the region of $10 million each. Pre-qualification of contractors for the tenders is over and initial tenders are expected before end-2010. OKP’s management has told The Edge Singapore that the company has gained pre-qualification.

DBS Vickers says that the company may form joint ventures to bid for MRT projects. “We note that OKP has no track record in MRT construction projects, especially tunneling works and hence, we consider it likely that they could team up with foreign partners possessing the required technology. OKP would be able to provide local knowledge, cheaper manpower and project management skills,” the report states. The broker hasn’t included potential MRT projects in its projections for OKP’s 2011 profits, so “any award win would be an additional upside for investors,” says DBS Vickers.

In 2006, OKP entered the oil and gas sector with a $50-million project doing engineering works at Jurong Island for Universal Terminals. After completing a $44-million civil works project at Jurong Island for the Foster Wheeler and WorleyParsons Joint Venture in 2008, OKP was reappointed for another $21.7-million project in 2009. In 2007, OKP Holdings incorporated a 55%-owned JV called OKP (Oil & Gas) Infrastructure to target oil, petrochemical and gas related projects in Singapore and secured three contracts on Jurong Island that same year. Jurong Island still has a bunch of billion-dollar projects yet to be built, including the Jurong Rock Cavern, the US$2.4-billion ($3.15 billion) Jurong Aromatics project and the $1.5-billion LNG terminal.

OKP’s order book is at $312 million, of which more than $200 million is still outstanding and will be delivered over the next 12-18 months. DBS Vickers points out that the company’s cash balance of $87 million “implies secure dividends as well, and frees up capital to take on larger, more complex projects, and allows leeway to invest in new businesses, possibility even small-scale property developments.” Its 70 cents target price is based on seven times FY11 PER for its recurring business and the estimated 22 cents per share of net cash. DBSV is forecasting net profits of $15 million for this year (OKP has a Dec year end) up 7.1% year-on-year and $18 million for FY11.

CHART VIEW
The STI (3,130) has broken above 3,100 convincingly. An earlier break above 3,000 indicated a target of 3,400. However medium term indicators are stuck at the high end of their range, suggesting that it will be difficult to maintain the pace of ascent and the STI is facing resistance at current levels. Support is at the most recent breakout level of 3,100.