A turning point for construction companies

One of the prospects that would excite investors most undeniably will be contract win for construction companies. The 2/3 majority win by BN in Johor had mostly reflected the future political standpoint for Malaysia in 2022, and hence, it is likely to bode well for construction companies.

For example, the reactivation of RM31 billion MRT 3 project will surely benefit many in the sector.

While everyone is focusing on bigger boys in the market, I would like to reiterate that it is crucial to remember that the government will be focusing on benefiting smaller companies.

Such as companies with G3 to G5 construction license. However, these companies are not listed, so we could not invest in them.

Luckily for me, here is one small cap company that is in my watchlist, OCR GROUP.

If you were to look at the share price, it is obvious that OCR’s share price is consolidating after the selling activities of their placement shares.

The flat candlestick for March had pretty much explained well on the share price activity of the company.

Back in 2021, OCR’s associate company Taraf Raya Sdn Bhd has entered into a memorandum of understanding with Malaysia Rail Link Sdn Bhd and China Communications Construction Sdn Bhd (CCC) to undertake project works on the East Coast Rail Link (ECRL) project in Pahang.

Notwithstanding potential new orders to come for the company, the company had over RM350 million worth of order book on hand, and it is clear that their earnings visibility will be up to 2023. A 10% margin represents a RM35 million PAT for 2 financial years, and based on OCR current market cap, the company is now trading at less than 5 times forward PER.

This represents a very good BUY opportunity for investors who missed the rally in big cap construction stocks. I believe OCR is slowly moving back towards profitability and its current valuation is really, really cheap.

Peace.