A) Summary
OKA, one of the largest precast concrete manufacturer in Malaysia, is an attractive value investment and a small-cap proxy to construction play due to:
(a) sustainable demand for its manufacturer goods with decent sales and profit margin growth opportunity ahead
(b) solid sales and profit growth track record in the past 5 FY
(c) good fundamental with net cash position

I project sales and net profit to grow 12% and 28%-12% in FY15-FY16 period and give atarget price of RM1.13 based on 9.0x FY16F P/E, a 33% upside (based on 14-Jan closed at RM0.85).

B) Business Background
Established since 1981 and listed in 2002, OKA core business is in manufacturing and sales of pre-cast concrete products and its products are mainly used in the drainage, sewerage, buildings and water related infrastructure works. Pre-cast concrete products are part of Industrial Building System (IBS), which is a construction technique where construction components (i.e. pre-cast concrete) are manufactured or cast in factory (instead of in construction site). The components are then transported to site for installation. This technique is gaining popularity due to its benefits in reducing reliance on site manpower (thus, foreign workers), save time and operating cost especially for large-size projects and suitable for construction in city center where casting concrete on-site is challenging.


Though pre-cast concrete products can be used in a wide range of construction situation, OKA's products is specialized in drainage and other water related infra works. So OKA is stand to benefit from construction of highway, new township and rail/MRT projects.

Projects that have used OKA products as below:

Source: Company website

Source: OKA FY2014 Annual report

- uncertainties in raw material pricing & effect of GST

iii) Past 8 Quarter Performance

Gradual rise of sales in the past 8 quarters.

Profit margin rising gradually with the latest 2QFY2015 being the best quarter in term of PAT margin. This should be contributed by the Group continuous effort in improving productivity and efficiency. 

i) Financial Projection

Future growth is expected to be driven by moderate sales growth and operating efficiency improvement. 

RHB Research has on 27 Nov 2014 published a research report. My financial projection vs RHB's as below:

F) Technical Analysis

OKA share price is in Short and medium term uptrend crossing above 20 & 50 MA lines. Long-term uptrend will be confirmed (a)if price do not retrace below 200MA and make a new high, and further confirmed if (b) 20MA cross above 50MA. Near-term support at RM0.90 and all-time high at RM1.04 (after price adjustment). Uptrend momentum is highest in 6 months time based on MACD and RSI reading. Price should retrace to 200MA and trendline support before continue its uptrend movement after being oversold in a 1 month rally starting on mid-Dec 2014.

Although OKA's is fundamentally stable, but due to its SmallCap natural, price retrace 50% from the recent selldown from RM1.04 high to RM0.52 without any changes in fundamental. It shows that market risk still play a big role here, traders/investor should form their entry/exit strategy in any investment. Warrant Buffet-like hold-forever strategy may not be suitable to everyone.

Chart from ChartNexus charting software

Disclaimer: This research is for informative purpose, not a buy or sell recommendation. I do not take any responsibilities on investment actions caused directly or indirectly by this articles. Readers are advised to do their own due diligent as information provided are subject to errors.