Excellent write-up. I hadn't heard of them before, I'm currently looking to track more companies in the Asia area & OKP Holding Limited makes for a compelling case.
Margin compression is my biggest concern but there are a few reasons why I believe it’ll stay higher than before (though not this high)
A lot of construction companies in Singapore have closed down as the construction industry has been pretty weak up until the past couple years. I think from 2018-2021 over 6,000 construction companies closed down. The industry has consolidated, and there are more projects than before as the industry has started growing again for the first time in a while.
They also have been implementing more technology into the work, which has cut down on manual labor and improved efficiency. They also have subcontracted less work out than in the past (which leads to higher margins) and I believe they’ll continue to do this considering they’ve been hiring a lot of employees.
The biggest reason I think margins will stay higher than before is because one of OKP‘s executives said that they’re being much more selective on contracts.
And even if margins contract, it’s important to realize just how conservative I was with the revenue estimates and assuming that they’ll win no new contracts as they are currently bidding on a few.
For construction, house building type businesses which dont have a large recurring revenue element, its good to check on the multiple of book value. Buybacks would make this very interesting but management teams dont always understand this.
As you found in their financials, all it takes is one mistake to ruin its financials. It had a road collapse, and it decimated its financials. Generally, here’s what also could go wrong
1. Estimated cost to complete go over actual revenues
2. Defects in construction
3. Cyclicality
All make this too hard for me, despite attractive p/e.
Excellent write-up. I hadn't heard of them before, I'm currently looking to track more companies in the Asia area & OKP Holding Limited makes for a compelling case.
Interesting write up. thanks for sharing
I always find it a bit misleading to talk about cash without factoring in debt. Nice write-up otherwise though!
What do you think will be realistic margins going forward? 20% seems very rich for a construction company and even half that is still quite a bit.
Margin compression is my biggest concern but there are a few reasons why I believe it’ll stay higher than before (though not this high)
A lot of construction companies in Singapore have closed down as the construction industry has been pretty weak up until the past couple years. I think from 2018-2021 over 6,000 construction companies closed down. The industry has consolidated, and there are more projects than before as the industry has started growing again for the first time in a while.
They also have been implementing more technology into the work, which has cut down on manual labor and improved efficiency. They also have subcontracted less work out than in the past (which leads to higher margins) and I believe they’ll continue to do this considering they’ve been hiring a lot of employees.
The biggest reason I think margins will stay higher than before is because one of OKP‘s executives said that they’re being much more selective on contracts.
And even if margins contract, it’s important to realize just how conservative I was with the revenue estimates and assuming that they’ll win no new contracts as they are currently bidding on a few.
Sounds interesting
For construction, house building type businesses which dont have a large recurring revenue element, its good to check on the multiple of book value. Buybacks would make this very interesting but management teams dont always understand this.
As you found in their financials, all it takes is one mistake to ruin its financials. It had a road collapse, and it decimated its financials. Generally, here’s what also could go wrong
1. Estimated cost to complete go over actual revenues
2. Defects in construction
3. Cyclicality
All make this too hard for me, despite attractive p/e.