OKA Corporation Bhd (7140) Posting Concrete Results
Last: RM0.92
Summary
Business Overview
Good Exposure to Precast Concrete Manufacturing
OKA is engaged in the production and wholesale distribution of precast concrete products and ready mixed concrete. The precast concrete products manufactured by the group are used in the drainage, sewarage, buildings and water related infrastructure works.
It started operation in 1981 via its OKA Concrete Industries Sdn Bhd and is now one of the largest manufacturers of precast concrete products in Malaysia. The long established track record forms one of the barriers to entry for new entrants.
Management led by Ong Kok Ann family
Founder Ir. Ong Kok Ann and his wife Mdm. Quah Seok Keng collectively own 55.8% of OKA.
Well Spread Plant Locations to Tap Demand
The head office of the OKA Group remains in Ipoh (Perak) and the factory operations are located at Batu Gajah, (Perak), Senai (Johor),Nilai (Negeri Sembilan), Gambang (Pahang), Sungai Petani (Kedah).
OKA had been awarded the Singapore Product Standards Board certification for reinforced concrete pipes in FY2012 and now contributes positively to its financial results.
Latest Financial Results
OKA's 6M FYMar2014 net profit rose 86% yoy to RM5.61m boosting half year EPS to 9.35sen.
On the back of relatively unchanged revenue base (6M FYMar2014: RM71.17m vs RM70.93m in last corresponding period), its profit margin was lifted by sales of products with higher margin during recent 6M period.
Its balance sheet is healthy with 12% net debt.
Precast Concrete Industry
Evolve into Industrialised Building System (“IBS”)
The trend of the Malaysian construction industry has moved from the traditional method to Industrialised Building System (“IBS”) manufacturing. IBS is a technique of construction whereby components are manufactured in a controlled environment, either at site or off site, and transported, positioned and assembled into construction works.
IBS boosts Precast Demand
The most popular IBS component used in Malaysia is precast components. First, it was announced that all new government building projects are required to have at least 50% IBS content commencing 2005. It has now risen towards 70% IBS content for public sector building projects. Also, the government via Construction Industry Development Board Malaysia (“CIDB”) hopes to increase the existing IBS content to 50% for private sector building projects by 2015. Housing developers who utilise IBS components exceeding 50% will be given full exemption on levy imposed by CIDB.
Valuation of Precast Concrete Companies
Earning Multiples compared to Pretax Margin
While construction companies command P/E ranging from around 10x (mid cap) to 15x (big cap), they enjoy only 7% to 9% pretax profit margin.
Meanwhile, cement related companies have mid-teen% pretax profit margin and therefore command higher P/E of around 20x
However, precast concrete companies which actually fetch mid-teen to twenty plus % pretax profit margin are accorded only around 10x P/E by most research houses at the moment.
Peer Comparisons
Given the lack of pure precast concrete companies in town, the following table tries to tabulate valuation of companies with precast concrete arm:-
*P/E based on last 12 months EPS
Note:
OKA is deeply undervalued
Based on OKA’s last share price of RM0.92 vs its NTA of RM1.72 per share, it is now trading at sharp discount of 0.54x P/B.
Also, after 2 impressive quarterly results and if OKA continues the stellar performance for the rest of FYMar2014, its annualisied EPS will be at an impressive 18.7sen. That means it is currently trading at only 4.9x P/E even after yesterday's sharp rally.
Pegging the stock at 40% discount to KL Construction Index of 16.7x derives 10x FYMar2014 P/E. This provides potential 103% upside towards RM1.87 for OKA.
P/E of OKA compared to KL Construction Index
P/B of OKA compared to KL Construction Index
Historical Share Price of OKA
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calvintaneng
I made Good Money in OKA. BOUGHT AT 35 CENTS 100,000 shares. SOLD ALL AT 85 CENTS. OKA DRAIN PIPES ARE WIDELY USED IN HIGHWAY CONSTRUCTION. AND IN ALL HOUSING DEVELOPMENT.
HOWEVER, MALAYSIAN GOVT IS AFRAID OF FITCH DOWN GRADE. SO FURTHER INFRAR WORK MIGHT BE DELAYED, POSTPONED OR CANCELLED.
AND RECENT GOVT CLAMP DOWN ON HOUSING WILL AFFECT DRAINAGE MATERIAL SALES.
SO PROSPECT NOT SO BRIGHT. WHY NOT CONSIDER MUI BERHAD WHICH WILL BENEFIT FROM VISIT MALAYSIA YEAR 2014
2013-11-26 12:42