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Management Q & A

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Dear Investors,

Thank you very much for the questions and the opportunities to clarify them. We hope you have a better understanding of our business through this online exchange.

Your questions will be reposted in blue followed by our replies in black.

Rgds,
The Management Team
OKP Holdings Ltd

Dear June Lim, you wrote:

As local projects may not be sustainable for the long term, does OKP has more concrete plans for overseas business and your ventures into oil & gas sector?

Thank you for the question.

When it comes to overseas business expansion plans and ventures into the oil and gas sector, we are selective in our approach and undertake them in a case-by-case manner when the right opportunities arise. We will continue to focus on our core competencies in civil engineering projects such as roads and other public infrastructure. We believe that the government will continue to invest in public infrastructure projects.

We hope that your concerns have been adequately addressed and look forward to your continued support in us.

Thank you.

Dear Lynda Tan, you wrote:

Why your shares keeps on dropping from 53 cents to 31 cents? Your Company have a very good reputation That's Why I bought your shares! Did your Company win the Sue case? I intend to buy more shares through your Company, is it OK? Thank you.

Thank you for your time in submitting the questions and more importantly, your vote of confidence and investment in our company.

We seek to grow our businesses by prospecting actively for new projects. However, the construction sector continues to face industry-wide challenges such as rising manpower costs, labour constraints and competitive pricing in project tenders. We were also adversely affected by an unexpected increase in sub-contractor costs and additional works for certain sewage-related projects as outlined in our press release published on 24 February 2014.

The company had on 26 November 2013 obtained interlocutory judgement on the lawsuit. The matter has proceeded for an assessment of the damages. We will make an announcement on any material developments on the case as and when appropriate.

We believe the above has addressed your concerns and look forward to your continued support.

Dear Sudhan, you wrote:

I've noticed from the GeBIZ tenders website that OKP is facing intense competition with almost all tenders. Prices are bid down quite low at times. This makes the net margins of OKP decrease. How is OKP mitigating the intense competition from such firms?

Thank you for the interest and questions.

The construction sector continues to face industry-wide challenges such as rising manpower costs, labour constraints and competitive pricing in project tenders. The unexpected increase in sub-contractor costs and additional works for certain sewage-related projects also caused our margin to decline in FY2013.

While tender prices had been relatively low, we expect prices and correspondingly, margin to normalise as industry peers gradually realise that a certain threshold of profit margin needs to be maintained to ensure sustainability in growth.

We also exercise prudence in our business operations and continue to prospect actively for new projects, paying attention to a sustainable profit margin. In addition to tendering for new projects, we will also explore opportunities to grow our business through acquisitions, joint ventures and strategic alliances to complement our core business segments in construction and maintenance. This allows us to leverage on our core competencies in civil engineering, ensuring a timely delivery of quality projects each time.

We believe that the above should address your concerns and thank you once again.

Dear Sean, you wrote:

With the rise in labour costs, how much higher are you able to raise prices in the tender for government projects? Can you also update on the TOP date for the JV for the condo?

Thank you for the questions and the concerns raised.

Across the industry, all contractors are affected by the rise in labour costs. We are however constrained in our efforts to increase prices by any substantial amount in our tenders for government projects as this will jeopardise our chances of winning the projects.

We will make an announcement on the TOP date for the JV for the condominium in due course.

We hope that your concerns have been adequately addressed and look forward to your continued support.

Thank you.

Dear Jim Chua, you wrote:

  1. Gross margins have dropped even further from last year. I believe Management is continuously trying to improve margins however, judging from continuous years drop in margins, is the business still viable? How confident is Management in turning around in the next 2 - 3 years?

    The construction sector remains challenged by industry-wide issues such as rising manpower costs, labour constraints and competitive pricing in project tenders. We were also affected by an unexpected increase in sub-contractor costs and additional works for certain sewage-related projects in FY2013 as outlined in our press release published on 24 February 2014.

    With our sterling track record, we are confident and positive about our businesses. We remain prudent in our business operations and continue to prospect actively for new projects, paying attention to a sustainable profit margin. In addition to tendering for new projects, we are also looking at various opportunities to grow our business such as through acquisitions, joint ventures and strategic alliances, which will complement our core business segments in construction and maintenance. This allows us to leverage on our core competencies in civil engineering, ensuring a timely delivery of quality projects each time.

  2. In the announcements, Management has cited the 3 reasons for the increase in cost of works. Sub-contracting costs and Labour costs appear to be long term in nature but the additional costs in sewage projects appear to be once off (although it was also cited in FY2012). Is there a clearer breakdown on the driver of costs? What was the main reason for the cost increase? How is management going to manage this given the extremely competitive environment?

    The driver for costs comprises labour and sub-contracting costs. The former consists of staff costs for engineers as well as site workers and workers' levies. Labour costs are also affected by government policies and legislation such as the foreign worker levies and CPF contributions.

    In terms of sub-contracting costs, it usually involves piling, asphalt works, painting, building, construction and so on. The rise in sub-contracting costs is a result of the Anguilla project which faced an increase in building costs.

    Given the competitive environment, we will continue to focus on improving productivity within our various work processes.

  3. Under segment reporting (page 42 of the full year results announcement), the maintenance revenue was approx. SGD32 million vs profit of SGD191k. Gross margins have dropped from about 18% in FY2012 to less than 1% this year. Is this still a viable segment to operate in?

    The maintenance segment is our stream of recurring revenue. As such, it remains a viable segment to operate in. The relatively low profit margin for maintenance projects is the result of a more competitive pricing environment and rising manpower costs. In order to stay competitive, we will work on improving productivity through various measures such as the adoption of advanced construction technologies including Building Information Modelling (“BIM”) and training courses.

  4. There was a report that OKP was participating in a North Korean project but I did not see any announcements on this; is this true?

    We wish to reiterate that as a listed company, we seek business opportunities in various parts of the overseas market, not limited to North Korea, with a view to improving shareholders' value. We also endeavour to share with all clients our experience in infrastructure building which enhances economic development. Against such background, we were invited to explore a business opportunity in North Korea by a business associate. Our involvement was only in the preliminary discussion stage.

Would like to thank Management as well. While it is difficult for investors to see such a well-run company face difficulties in the past 2 years, it must be doubly difficult for you to operate under such tough circumstances. Please continue to fight the good fight.

Thank you once again for your vote of confidence in us and we look forward to your continued support. We hope that your concerns have been adequately addressed and look forward to your continued support.

Thank you.

Dear Bruce Tan, you wrote:

Management,

Appreciate your management's effort in ensuring transparency and the hardwork put into running the business

However, I was wondering why is there a loan to "associates" at 2% and interest free? Please explain the rational of loaning the money rather than using the money to develop the business.

Thank you for the kind compliment as we strive to maintain our reputation and integrity as a listed company.

The loan at a rate of 2% was in fact our investment in our associated company, CS Amber Development Pte. Ltd, while the interest free loan was for our joint venture project to develop an executive condominium at Yuan Ching Road/Tao Ching Road. These investments are in line with our objective to diversify revenue streams by venturing into the property development business and the loans were granted for the working capital of the investee companies.

We hope that your concerns have been addressed and look forward to your continued support.

Dear Martyn Williams, you wrote:

Dear Sirs,

It has been reported that OKP Holdings is part of a consortium that recently won a contract to build roads and a trade zone in the DPRK.

Could you please provide more details about the projects, timeframes, expected investment or income and partners in the project?

Martyn

Thank you for your time in submitting the questions.

We continue to seek business opportunities in various parts of the overseas market, not limited to North Korea, with an overall objective to enhancing shareholders' value. We are transparent in sharing with all prospective clients our experience in infrastructure building which may enhance economic development. As such, we were invited to explore a business opportunity in North Korea by a business associate. Our involvement was only in the preliminary discussion stage and we did not sign any contract.

Thank you once again for the concern and interest in our projects. Should there be any material development, we will make an announcement.

Dear Investors,

Thank you for all your questions and the interest in OKP Holdings Ltd. We have come to the end of this Q&A session.

We have enjoyed and learnt much from your questions and we hope that you have a better insight of our Company and know more about our operations.

Rgds,
The Management Team
OKP Holdings Ltd.