OKP Holdings - High dividend, good earnings visibility (DBSVickers)

BUY S$0.56 STI : 2,773.17

Price Target : 12-Month S$ 0.80

Reason for Report : New order win

Potential Catalyst: Margin sustainability, M&A, investments

DBSV vs Consensus: Our EPS estimates are largely in line with consensus

• New orders continue to flow, and drives healthy revenue visibility in FY11/12F

• Net cash of S$0.32 per share underpins dividend sustainability; currently trading at yield of 9%

• Maintain BUY with TP of S$0.80

Orders continue to flow. Last week, OKP announced its 7th contract win this year – a S$46.8m contract from the Public Utilities Board in Singapore to improve the Alexandra Canal between Zion Road and Kim Seng Road. With this order win, OKP has won about S$152m worth of contracts YTD in 2011, and has almost met our FY11 new order win assumption of ~S$170m within the first 8 months of the year. We estimate current net outstanding orderbook of over S$250m, which underpins our FY11F earnings while securing more than 60% of our FY12F revenue. Net book-to-bill ratio stands at ~1.8x.

Other business opportunities emerging. Major shareholder China Sonangol has recently agreed to buy another 15m vendor shares of OKP Holdings at a premium to the market (S$0.66 per share), bringing its stake up to 14% and further strengthening its commitment to OKP as a partner. China Sonangol has shown serious intent in the Singapore property market through its ongoing Angullia Park project and the Amber Towers en bloc acquisition in April 2011, creating more business opportunities for OKP in building construction contracts as well as potential investment avenues.

Outperformed the STI to date. OKP has around S$97m net cash on its books (S$0.32 per share or 56% of its current market cap). The surplus cash hoard allows the company a buffer against any adverse market conditions, return part of it to shareholders as dividends, potentially acquire complementary businesses and/ or invest in related fields like property development. We estimate 5Scts total DPS in FY11/12F (including special dividends). Even if OKP were to pay out only 3Scts, that still translates to a decent 5.3% yield at current price. Maintain BUY with unchanged TP of S$0.80.