OKA Corporation Bhd
(Jan 26, RM0.90)
Maintain buy with target price (TP) of RM1.13: We recently met OKA Corp Bhd’s management at its Batu Gajah plant. The more than 80 acres (32.37ha) plant is filled with precast concrete products, waiting to be delivered to its customers. We expect potentially higher orders in the first quarter of calendar year 2015 (1QCY15) ahead of the goods and services tax (GST) implementation.

The severe floods in Kelantan, Terengganu, Pahang and Perak have caused damage to homes and infrastructure, including roads and drainage system. According to the revised 2015 Budget, the government provided an initial allocation of RM500 million to aid flood victims and will allocate RM800 million for the repair and reconstruction of basic infrastructure such as schools, hospitals, roads, bridges and other infrastructure. On top of that, it has also announced that it will allocate RM893 million under the 2015 Budget for flood mitigation projects. We believe OKA might benefit from the rebuilding of flood-affected areas.

OKA enjoys higher margin from special products that it designs specifically for its clients. It managed to  chart a higher net margin of 12.1% in the first half of its financial year ending March 31, 2015 (1HFY15), compared with 7.7% in 1HFY14.

We believe OKA is able to sustain the margin as the company is expected to supply the products to its clients continuously. The fundamentals of the company remain intact. We like OKA for its strong presence in Peninsular Malaysia and better earnings visibility as it can ride on rising infrastructure developments in Malaysia. We are maintaining our “buy” recommendation on OKA with a TP of RM1.13, pegged to an unchanged FY16 forecasted price earnings (P/E) of 10 times — still below the stock’s 10-year average P/E of 15.6 times. — RHB Research, Jan 23

This article first appeared in The Edge Financial Daily, on January 27, 2015.