Stock Pick - OKA Corporation
Stock Pick - OKA Corporation |
Recommended: buy
Target Price: MYR 1.70
Price: MYR 1.22
Riding On Buoyant Construction Sector
We are initiating coverage on OKA with a BUY recommendation and MYR1.70 FV, pegged to FY15F 10x P/E, still below its 10-year average P/E of 15.6x. We like the company for its: i) prudent management, ii) strong presence in Peninsular Malaysia, and iii) solid earnings visibility, given its ability to ride on the infrastructure developments in Malaysia that have long gestation periods. Being one of the dominant sewage pipe makers in Malaysia, we believe that OKA could potentially benefit from the West Coast Expressway (WCE) project. Earnings growth is expected to remain strong over the next two years, underpinned by more orders and better margins. We expect a CAGR of 25.5% from FY13-15F. OKA is still trading below its NTA/share of MYR1.72 as at end-Sept 2013.
Ipoh-based producer of precast concrete products. OKA is involved in the manufacture of precast concrete products in Malaysia, mainly catering to the infrastructure, sewerage, construction and highway industries. Headquartered in Ipoh, Perak, the company has six factories in Peninsular Malaysia, with two plants in Batu Gajah in Perak, and one plant each in Sungai Petani, Nilai, Senai, Johor and Kuantan in Pahang. Its Batu Gajah Perdana plant manufactures wire rods for its own use. Its plants have a combined production capacity of 660,000 tonnes of precast concrete products annually.
Boost from infrastructure projects. We believe that the prospects of the construction sector will remain strong, underpinned by an extended upcycle driven largely by the MYR73bn Klang Valley Mass Rapid Transit (MRT) project. The Government is expected to focus on projects with low import content and high multiplier effects, such as the WCE, the refinery & petrochemical integrated development (RAPID) and the Gemas-Johor Bahru double track projects that were specifically mentioned in Budget 2014. There was no mention of any cancellation or deferment of mega projects when the Budget was announced in October 2013. In fact, the Government promised more infrastructure developments, such as development of more affordable homes, new expressways, rural developments, and so on. These are poised to boost infrastructure developments as well as accelerate the demand for basic material and related products.
To potentially benefit from WCE project. WCE is a 233km highway that connects Banting in Selangor to Taiping, Perak. In a 3 Jan 2013 Star WCE SB CEO Datuk Neoh Soon Hiong said that the Government was in the midst of setting up a tender committee, and that work on the highway would probably start in 2QCY14. The WCE is scheduled to be completed in 2018. Being one of the dominant players in sewage pipes in Malaysia, we believe that OKA could potentially benefit by supplying the pipes and culverts to be used in WCE’s drainage system, as drainage is vital in road construction. A highway project would require proper drainage along its length to ensure road safety as well as to minimize maintenance problems.
BUY, with MYR1.70 FV. We like OKA for its: i) prudent management, ii) strong presence with six plants located in various states in Peninsular Malaysia, and iii) strong earnings visibility, given its ability to ride on rising infrastructure developments in Malaysia that have long gestation periods. We expect earnings to be strong in FY14 and FY15, propelled by strengthening sales and better margins. We expect a 3-year CAGR growth of 25.5% in net earnings for the FY13-15F period. We are initiating coverage on OKA with a BUY recommendation and MYR1.70 FV, pegged to a FY15F P/E of 10x, still below the stock’s 10-year average P/E of 15.6x. The company is still trading below its NTA/share of MYR1.72 as at end-Sept 2013
(Courtesy of RHB OSK188)
We are initiating coverage on OKA with a BUY recommendation and MYR1.70 FV, pegged to FY15F 10x P/E, still below its 10-year average P/E of 15.6x. We like the company for its: i) prudent management, ii) strong presence in Peninsular Malaysia, and iii) solid earnings visibility, given its ability to ride on the infrastructure developments in Malaysia that have long gestation periods. Being one of the dominant sewage pipe makers in Malaysia, we believe that OKA could potentially benefit from the West Coast Expressway (WCE) project. Earnings growth is expected to remain strong over the next two years, underpinned by more orders and better margins. We expect a CAGR of 25.5% from FY13-15F. OKA is still trading below its NTA/share of MYR1.72 as at end-Sept 2013.
Ipoh-based producer of precast concrete products. OKA is involved in the manufacture of precast concrete products in Malaysia, mainly catering to the infrastructure, sewerage, construction and highway industries. Headquartered in Ipoh, Perak, the company has six factories in Peninsular Malaysia, with two plants in Batu Gajah in Perak, and one plant each in Sungai Petani, Nilai, Senai, Johor and Kuantan in Pahang. Its Batu Gajah Perdana plant manufactures wire rods for its own use. Its plants have a combined production capacity of 660,000 tonnes of precast concrete products annually.
Boost from infrastructure projects. We believe that the prospects of the construction sector will remain strong, underpinned by an extended upcycle driven largely by the MYR73bn Klang Valley Mass Rapid Transit (MRT) project. The Government is expected to focus on projects with low import content and high multiplier effects, such as the WCE, the refinery & petrochemical integrated development (RAPID) and the Gemas-Johor Bahru double track projects that were specifically mentioned in Budget 2014. There was no mention of any cancellation or deferment of mega projects when the Budget was announced in October 2013. In fact, the Government promised more infrastructure developments, such as development of more affordable homes, new expressways, rural developments, and so on. These are poised to boost infrastructure developments as well as accelerate the demand for basic material and related products.
To potentially benefit from WCE project. WCE is a 233km highway that connects Banting in Selangor to Taiping, Perak. In a 3 Jan 2013 Star WCE SB CEO Datuk Neoh Soon Hiong said that the Government was in the midst of setting up a tender committee, and that work on the highway would probably start in 2QCY14. The WCE is scheduled to be completed in 2018. Being one of the dominant players in sewage pipes in Malaysia, we believe that OKA could potentially benefit by supplying the pipes and culverts to be used in WCE’s drainage system, as drainage is vital in road construction. A highway project would require proper drainage along its length to ensure road safety as well as to minimize maintenance problems.
BUY, with MYR1.70 FV. We like OKA for its: i) prudent management, ii) strong presence with six plants located in various states in Peninsular Malaysia, and iii) strong earnings visibility, given its ability to ride on rising infrastructure developments in Malaysia that have long gestation periods. We expect earnings to be strong in FY14 and FY15, propelled by strengthening sales and better margins. We expect a 3-year CAGR growth of 25.5% in net earnings for the FY13-15F period. We are initiating coverage on OKA with a BUY recommendation and MYR1.70 FV, pegged to a FY15F P/E of 10x, still below the stock’s 10-year average P/E of 15.6x. The company is still trading below its NTA/share of MYR1.72 as at end-Sept 2013
(Courtesy of RHB OSK188)