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Chairman's Statement

(Extracted from Annual Report 2016)

Chairman

Dear Shareholders,

During the past year, the outlook for the global economy continues to face uncertainties with still low oil prices, slow economic growth in China and modest growth in the Eurozone economy, although United States and ASEAN economies are seeing some signs of recovery. Such economic factors, plus political instability and potential environmental calamities, will continue to weigh on businesses operations all over the world including Singapore.

According to the Ministry of Trade and Industry's figures announced on 17 February 2017, the Singapore economy saw slower growth of 2.0 per cent per cent in 2016, marginally up from 1.9 per cent growth in 2015, Growth in the construction sector went up by 0.2 per cent, moderating from the 3.9 per cent growth in 2015. Sluggish private sector construction works weighed down growth in this sector.

Despite these challenges, OKP Holdings Limited (OKP) stays positive and confident that the Group can overcome these difficulties by staying focused on its vision to be a leading transport infrastructure and civil engineering company in Singapore, the region and beyond. Our vision will continue to be the key factor in propelling the company ahead as we seek to exceed past aspirations and inspire OKP towards a greater and sustainable future.

The Group is committed to implementing its strategy to focus on our core competencies, broadening our presence in the oil and gas sector, exploring overseas business opportunities, and diversifying earnings through property development and other investments. We are confident that this strategy will help to engineer business growth and fortify our competitiveness.

At OKP, we aim to uphold our leadership position in our core business of construction and maintenance in the public sector, while progressively growing our projects in the private sector. During 2016, the Group was successful in clinching one construction and four maintenance contracts with a total value of $101.8 million.

We have also established firmer foundations for our company by broadening our expertise and capabilities through forming joint ventures to develop properties and bid for Mass Rapid Transit (MRT) projects. To date, the Group has been involved in developing two property projects. These are Amber Skye, a condominium at Amber Road and LakeLife, an executive condominium at Yuan Ching Road/Tao Ching Road, in Singapore.

Founded in 1966, OKP was listed on the Singapore Exchange in 2002. Since its founding, the Group has grown substantially with staff strength growing from 10 employees in 1967 to 409 in 2002 and 808 today. In facing the ups and downs of the business cycle while overcoming numerous obstacles in building and managing an infrastructure and civil engineering business in Singapore and the region, OKP has grown to become a steady and reliable business, motivated by its mission.

To be the first and preferred civil engineering contractor for the various industries, here and overseas is the Group's mission. We will continue to drive ourselves forward in achieving this mission by steadily expanding our expertise, capabilities and presence in order to stay ahead of our competitors. Through several decades, OKP's reputation has grown due to its many key advantages, which have reinforced its leadership position in the construction industry. These advantages include our strong track record, capable management team, experienced and skilled staff in civil engineering projects, and vast expertise.

Performance Review

It was a challenging and competitive year in 2016 for the Group as it continued to seek to exceed its past aspirations and work towards a sustainable and brighter future. During the financial year (FY2016), OKP recorded revenue of $111.1 million, a 7.6 per cent increase compared to the previous year (FY2015). The overall increase in revenue came from the Group's construction segment, which rose 16.7 per cent to $90.5 million in FY2016. However, total revenue was affected by the maintenance segment, which fell by 19.9 per cent to $20.6 million.

The main contributor to the Group's revenue was the construction segment, accounting for 81.5 per cent (2015: 75.1 per cent) of total revenue for the financial year. The maintenance segment accounted for 18.5 per cent (2015: 24.9 per cent) of OKP's overall revenue.

This increased revenue contribution from the construction segment was mainly driven by the higher percentage of revenue recognised due to the progression of a number of existing construction projects towards a more active phase during the financial year. In the case of the maintenance segment, the drop in revenue was attributed to the substantial completion of several existing maintenance projects in FY2016.

Gross profit increased by 59.2 per cent to $21.9 million compared to $13.8 million a year ago while gross profit margin went up to 19.7 per cent compared to 13.3 per cent in the previous year. The higher gross profit margin was largely attributable to the completion of a few maintenance projects, which had commanded better gross profit, and the recognition of variation orders for a construction project. Net profit attributable to equity holders jumped by 104.7 per cent to $14.3 million compared to $7.0 million a year ago.

Overall, the increase in bottom-line was mainly in sync with the higher revenue and gross profit as well as due to an increase in share of results of associated companies and joint ventures of $2.9 million. This increase was mainly due to a $2.6 million gain from the share of profit from a joint venture, Lakehomes Pte. Ltd., developer of the LakeLife executive condominium, based on the recognition of profits from units of the development which were ready for handover. Correspondingly, basic earnings per share was 4.7 cents compared to 2.3 cents a year ago, a jump of 104.8 per cent.

The Group's balance sheet remained solid. With a healthy cash position of $70.1 million, its net tangible assets amounted to $112.7 million as of 31 December 2016. This was equivalent to 36.5 cents per share, compared to 33.4 cents per share a year ago.

In appreciation of the loyal support from OKP's shareholders through the past years, I am pleased to inform that the Board of Directors has proposed a final dividend of 0.7 cent per share and a special dividend of 0.8 cent per share. Together with the interim dividend paid at 0.5 cent per share, the total dividends of 2.0 cents per share represent a dividend yield of 6.9 per cent and a dividend payout ratio of 42.6 per cent for FY2016 based on our closing share price of 29.0 cents on 31 December 2016.

Exceeding Past Aspirations

The Group's strenuous efforts and invaluable expertise have been well recognised in the industry as OKP received many accolades through the years. In 2016, we won six awards – the Best Annual Report Award (Gold) in the “Companies with less than $300 million market capitalisation” category at Singapore Corporate Awards 2016, three safety awards, two Green and Gracious Builder (Excellent) awards and one Total Defence award.

The three safety awards are from Changi Airport Group in recognition of our commitment to achieve Zero Safety Infringement for works at Seletar Airport; and two from the Land Transport Authority (LTA). One is for “Category 2 (Civil contracts not exceeding $120 million) for companies that have achieved above 400,000 accident-free man-hours worked” for Contract ER458, and the other is for the “Major Category (Civil contracts between $20 million and $50 million)” for Contract ER458.

During the year under review, OKP continued to strengthen its business by winning five contracts - one construction project and four maintenance projects. The Group completed one construction project and two maintenance projects, which were handed over successfully to the clients. We continued the execution of several ongoing construction projects, which had been secured since April 2014.

Currently, our net construction order book stood strong at $329.9 million, with contracts, extending till 2019.

Inspiring Greater Future

In the near future, the construction industry will continue to stay positive with a steady stream of projects in the pipeline. The Building and Construction Authority (BCA) has projected that the total value of construction contracts to be awarded in 2017 will reach between $28.0 billion and $35.0 billion, higher than the preliminary estimate of $26.1 billion in 2016. About 70.0 per cent of the contracts will be driven by the public sector, due to an increase in demand for most building types and civil engineering works. Public sector construction demand is expected to increase from about $15.8 billion last year to between $20.0 billion and $24.0 billion this year.

With the current slowdown in the property market and continued uncertain economic climate still prevailing, the private sector construction demand is likely to remain subdued with projected demand of between $8.0 billion and $11.0 billion in 2017.

The good news is that the Singapore Government announced during the February 2017 Budget debate that it will provide a boost to the construction industry by bringing forward the start date for about $700 million worth of infrastructure projects in the public sector to 2017 and 2018. This is positive news for infrastructure and civil engineering companies such as OKP as we will have greater opportunities to bid for such projects.

Although the construction industry is intensively competitive, OKP is confident of securing more sustainable business as the Group is an experienced player, especially for public sector projects. The BCA's projections of higher construction demand particularly from the public sector and in civil engineering works in 2017, spell good news for OKP. The Group has a solid reputation in the public sector, which will put it in a strong position to win new contracts in the coming year. To stay ahead of the tough competition, OKP has been broadening its expertise and consolidating its capabilities by undertaking new and related areas of business and expanding overseas.

At OKP, we are looking with great interest at a number of large and exciting infrastructure projects in Singapore, which are expected to offer potential construction and civil engineering business opportunities for us.

Our investments in property developments will continue as and when excellent opportunities arise. Currently, the Group is involved in two property projects. They are the 109-unit freehold Amber Skye at Amber Road which was launched in September 2014, and an executive condominium, LakeLife, at Yuan Ching Road/Tao Ching Road in Singapore, which has sold almost all its units and obtained the Temporary Occupation Permit on 30 December 2016.

The Group's focus will continue to be on its civil engineering business, where we have established our decades-long solid track record and vast expertise as the preferred civil engineering contractor for various industries, locally and overseas. However, we are also realistic and expect the operating environment in the construction industry to remain tough. This is due to increasing business costs, a tight labour market, and scarcity of experienced and skilled manpower, as a consequence of the prevailing government policies and legislation involving foreign workers' employment.

To tackle these issues, OKP has enhanced its operations and productivity through various measures. These include the adoption of advanced technologies and training programmes.

Our Group will continue to tender for new projects, both locally and overseas and explore new businesses, through acquisitions, joint ventures and/or strategic alliances, that could complement our construction and maintenance business. These will enable us to move into new markets and acquire potential clients.

A Note Of Thanks

On behalf of the Board, I would like to express my heartfelt thanks for the continuing and unwavering support of our shareholders, clients, business associates and suppliers through the years. I would like to convey my deep appreciation for the continuing backing from all of you. I am also grateful to the management team and employees for your leadership, excellent efforts and good team work. As we look to the future, I am sure that you will continue to put in your best efforts and be inspired to help OKP grow stronger and better in the years ahead.

Last but not least, I would also like to register a big thank you to our Board of Directors for their wise counsel and invaluable contributions, which they have given generously from their years of experience.

All of you have devoted your time, energy and investments to make OKP what it is today – and for this, I am truly grateful. As we celebrated the 50th anniversary of the founding of Or Kim Peow Contractors (Pte) Ltd, which started as a sole proprietorship in 1966, we can see that the Group has made great strides through the years. This is indeed a milestone we should all be proud of. I sincerely believe that together with all your combined efforts and contributions, we can achieve our vision to be one of the leading infrastructure and civil engineering companies in Singapore and the region now and in the future.

Chairman

Or Kim Peow
Group Chairman


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