As OKA is one of the largest local ready-mixed and precast concrete manufacturers and its products are widely used in the infrastructure, sewerage, construction and highways, sentiment on the stock could further improved in anticipation of the revival of mega infrastructure projects and government’s commitment in building more affordable homes. Valuations are cheap at 11.7x (53% below peers) and 0.83x BVPS (43% below peers), underpinned by attractive 6.2% DY (based on average 3.7sen in the last 3 years) and 1Q20 net cash/share of RM0.192 (Ex-cash P/E is only 7.9x). Technically, the stock is poised for a potential downtrend reversal towards RM0.63-0.74 levels in the mid to long term following the formation of Dragon Fly Doji and Hammer candlesticks.

One of the largest manufacturers of precast concrete products in Malaysia. 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. To date, its plants have a combined production capacity of 660,000 tonnes of precast concrete products annually. OKA’s products are mainly catering to the infrastructure, sewerage, construction and highway industries.

An attractive dividend play vs. declining MGS yield. With investors likely to gravitate towards yield plays in wake of the low interest rates environment and persistent external headwinds, we believe OKA (still cum 1.9sen dividend and backed by 19.2sen 1Q20 net cash) could fit the bill, underpinned by sustainable dividends despite declining profits in the last 3 years (FIG2). Overall, OKA is in the capacity to maintain a 3.7sen dividend for FY20 (translating into a 6.2% DY), backed back solid balance sheet and expectations of potential earnings recovery due to the revival of mega infrastructure projects and government’s commitment in building more affordable homes.

Technical rebound in the pipeline. OKA’s share prices slid 21% from YTD high of RM0.74 (8 May) to a low of RM0.585 (29 Aug) before closing higher at RM0.60 on 30 Aug. We think the stock is ripe for further recovery in the near term following the formation of Dragon Fly Doji (29 Aug) and Hammer (30 Aug) candlesticks. A decisive breakout above RM0.63 (SMA 20) will spur prices higher towards RM0.67 (SMA 100) before reaching our LT objective at RM0.74. Key supports are situated near RM0.585 and RM0.555 (52-week low on 18 Jan 2019). Cut loss at RM0.55.

Source: Hong Leong Investment Bank Research - 3 Sept 2019