Optimism over construction projects in Budget 2020
The growing infrastructure spending and public housing development as well as private condominium redevelopment is positive for Malaysia pre-cast concrete product suppliers and contractors, it said.
With the returned of slight optimism following the mini-trade deal, coupled with the less austerity sounding Budget 2020 (a change of tone from Budget 2019), we think local equity market may gain attractiveness moving forward. Thus, we are picking sectors/ stocks such as (i) technology – ISTONE, KESM, (ii) renewable energy – CYPARK, PESTECH, (iii) construction OKA, KIMLUN, and (iv) tourism – TUNEPRO on the back of incentives/ initiatives/ policies announced in the recent Budget 2020.
Construction: Given the increase in development expenditure and potentially improving construction sector, we see precast concrete manufacturers such as OKA and KIMLUN to benefit from the initial stage of construction jobs.
OKA – One of the largest manufacturers of precast concrete products in Malaysia Infrastructure and construction jobs beneficiary. With decent track record in the past on infrastructure projects, OKA should benefit from the improving outlook of construction jobs as well as the less austerity sounding Budget 2020. Besides, OKA’s 19.2 sen net cash per share and 5.6% dividend yield should be attractive to accumulate.
After share price turned sideways along the RM0.50- 0.60 levels, we noticed a breakout above the trendline. The weekly ADX Indicator is improving and hence we expect further upside on OKA towards RM0.69-0.72, followed by a LT TP of RM0.77.
Just to share an old article with you guys here. I think it can sort of enhance our belief in this counter.
"Expect progressive improvement in sales once the new factory is in place. Recall that OKA recently announced the acquisition of a 3.6ha vacant land, adjacent to its present factory in Senai, for the construction of a new factory. The acquisition of land is expected to be completed by 2QFY19. This new factory is expected to cater for more orders, given the expansion of production capacity, which may support its revenue growth moving forward. — RHB Research Institute, May 30"
The main reason i bought some small amount of OKA because i have been seeing their logo on alot of concrete U drainage during my commute to work at different areas. The other day i saw a trailer with a huge concrete I-beam driving along the road. I guess signs that they are getting business. Also, the dividend rate is quite high.
You're welcome SHQuah. Below is a small part of the conversation from the question-and-answer session from the latest AGM.
Shareholder: Pages 44 & 45 of Annual Report showed a big drop in the receivables, deposits and prepayments whereas the payables and accruals decreased by a small amount compared to previous year, is this a fair reflection of the economy in the industry? With the drop in turnover and receivables, what is the outlook on the prospects of the industry you are in? What is your prospect for participating in the ECRL project and other upcoming projects?
CFO: With regard to prospect, given the current slow-pace economic situation, we have to work hard to procure orders. The progress of ECRL is not going on as much as desired. There is currently a slow trend in construction industry. Accordingly revenue and profit have dropped. Lower sales will also result in a dip in trade receivables. In addition, for trade receivables, Note 8 explains that only secured debtors are recognized while loss allowances are made for expected credit losses, based on probability-weighted estimate of credit losses, taking into consideration historical past due aging for the past three years.
Shareholder: The trend of housing projects seems to gear towards low cost housing, will the company benefit from such projects?
CFO: As long as there are development and more projects, the Company can benefit from them.
Shareholder: Do you foresee the construction industry gets better or worse?
ED: We do see some light, it gets a bit better, though not able to achieve similar results as in previous years. Take for example the ECRL project which was announced 2 years ago. Though it was awarded and started, the progress is slow. This situation is out of the Company’s control and difficult to predict. If all the government jobs kick off, then we are confident of better prospects.
# The conversation above tells us about the status of ECRL and OKA's involvement in it. Besides, it also sheds light on the management's confidence once the government jobs kick off which could probably be next year.
Very good quarter results. NTA increase to 74 sen from 71 sen. Cash rich company basically with zero debt. Current share price 64 sen is way below actual value. Under value stock.
Construction activities for East Coast Rail Link (ECRL) will be ramped up soon in Pahang. Jobs for the subcontracts are expected to be awarded in the first quarter of next year.
More and more tenders will start next year. I guess the gains will soon be reflected in the financial reports next and hopefully, the share price will follow suit. :) I have been buying since the beginning of 2018. Hopefully my decision is correct! XD
There is no way for tiny shareholders to know what's going on inside. However, with the track record of the management, I'm confident that OKA will benefit from the project one way or another next year. I'm quite optimistic with the projected performance.
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Posted by Tete7893 > 2019-09-15 10:49 | Report Abuse
Hope next week have some movement