Monday, 9 May 2016

OKA - Topping The Packs

Oka Corporation Berhad (OKA - 7140) had a history dated back then to 1981 where OKA group of companies had been involved in manufacturing of precast concrete products that are used in the drainage, sewerage, buildings, and water related infrastructure works. Oka gained public listed into the 2nd board of KLSE at 2002, and subsequently transferred to the main board successfully in year 2003. Currently, albeit the total market capitalization of RM 167 million, OKA is one of the largest and leading precast concrete manufacturer in Malaysia.

While the local Malaysian economy outlook might be challenging in 2015 and 2016, the cement industry continue to show consistent rising demand due to the local government commitment in rolling out huge public infrastructure project such as MRT 1, MRT 2, LRT 3 and highways.

However, the introduction of GST, the weakening of MYR towards the USD continue to be a huge challenge to local cement player. The local cement industry had been seeing tight competition between competitor, hence weakening the profit margin of the industry. In order to champion the packs, OKA had focused towards product specialization and differentiation and better cost control in order to continue growing further.

OKA and the Cement Industry in Malaysia

A common house name for  cement player in Malaysia will see easy mentioned such as LaFarge, YTL Cement, Tasek and Hume Industry Berhad. Of course, these are the long established name in Malaysia that command big volume in the industry. Given the steady track of record as well as consistent nature of dividend payment towards the shareholder, the established cement player that are listed in the KLSE will easily enjoy a PER of x20, such as Tasek.

The property development sector makes up to 50-60% of total cement demand in Malaysia. However, due to the recent dishing out of public infrastructure project such as MRT, LRT and highways, there is an uprising demand in the precast concrete product.

Oka offered various of precast concrete product that caters for the MRT, LRT, highway, water treatment plant, sewerage plant as well as drainage system and bridges.

The strategic distributed location of Oka's plant and factory in the Peninsula Malaysia is one of the biggest key point for Oka to capture the growth from the rising state of Penang and Johor.

Key highways project such as DUKE extension, WCE, DUKE, SUKE and EKVE continue to underpinned consistent growing demand towards Oka precast product, such as its superior "Porous Pipes" that champion over all other competitor. Porous pipes are essential for land drainage for the rapid removal of water, hence a critical component in the construction of road.

Oka past revenue performance
What is even interesting in Oka is it's relatively cheap valuation compared to all it's peers.
Currently, with a cumulative 3 quarter EPS of 9.7 cents, with the final quarter and FYE 2016 result announcing in May this month, Oka can easily see a total EPS of 13 cents for FYE 2016.



With the current price of RM 1.06, Oka is greatly undervalued. While it's peer are trading at PER x 20, should Oka take a valuation of PER x 12 based on projected EPS of 13 cents for FYE 2016, Oka is easily carrying a valuation of RM 1.56.

Oka strong balance sheet with a net cash of RM 17 million will continue to ascertain shareholder on
- Expansion and Growth
- Consistent Dividend
- Strong Balance Sheet to Weather Economic Ups and Downs

Technical Outlook


It is noticeable that Oka had been riding in a strong uptrend despite the lackluster performance for most of the equity due to the challenging global environment. Oka uptrend had to give credit to strong performance in the past 3 quarterly result.

According to the technical reading, Oka is resting on support price of RM 1.04. Strong open market accumulation had been seen in 21st and 22nd of April 2016, with solid bullish candle marked with strong volume of 2.94 million in 21st and 5.28 million in 22nd of April.

Oka is foreseeable to deliver an EPS of not lesser than 3 cents in 4Q FYE 2016, which will be the main catalyst for Oka to rev up to RM 1.20 as a primary target.

Conclusion
Oka is currently a hot investor target based on
- Strong quarterly display in past 3 quarter consistently, marking a cumulative EPS of 9.7 cents
- Growing demand in precast concrete product, underpinned from large public infrastructure project
- Good dividend policy
- Strong cash position of RM 17 million
- Technical chart in uptrend mode at support line buy in opportunity

Bone's TP : RM 1.20

Cheers and have a nice day

Regards,
Bone

Tuesday, 3 May 2016

Arank - Rising Alloy

A-Rank Berhad (Arank - 7214) specialized in the production and manufacturing of customized aluminum homegenized extrusion billets through wholly owned subsidiary Formosa Shyen Horng Metal Sdn Bhd. Started in 1998 with only an annual capacity of 12,000 metric tonnes, Formosa had registered consistent growth. Currently, Formasa had an installed capacity of 120,000 metric tonnes a year, 10 times more from where they had started.

Arank had acquired 55% of equity interest in Hong Lee Group (M) Sdn Bhd which its principal activities are engaged in manufacturing of aluminum based kitchen cabinet and glass cabinet. The group had a quite balance revenue with 60% local and 40% export.

Outlook on Aluminum Application on Automotive Industry

The improvement of technology, the strive to see better efficiency and reduction on CO2 had continue to push for better raw material input. One of the significant industry that will be heading for this big change will be the automotive industry.
Weight reduction is topping the list for automobile manufacturers in searching ways to improve fuel economy and freight efficiency. A research conducted by Ricardo Consulting Engineers had displayed that a commercial tractor-trailer can see it's weight reduced by 1,500 kg with intensive aluminum application. It is estimated that by replacing all of North America class 8 tractor-trailer, that will save 9.3 million tons of CO2 annually.

Aluminum is well positioned as the best solution for weight reduction in heavy and medium duty truck and trailer market. This is in tandem with the EPA (Environment Protection Agency) to tighten the emission profile of the heavy duty truck and trailer market.

With the intensive development from Tesla in changing the automotive industry through a commercialized production on Electric Vehicle, lightweighting play an even more important role.

Tesla had saw it's Model S production featuring intensive usage of aluminum. Data in 2014 reveal that automotive industry (excluding China) consumed 2.87 million tonnes of aluminum. By 2020, the industry will be looking to see a consumption of 4.49 million tonnes of aluminum a year.

Every 1 kg of aluminum used in the car production will reduce the overall weight of the vehicle by 1 kg. For this reason, the application of aluminum are rushing into car parts such as engine radiator, wheels, bumpers, suspension parts, engine cylinder blocks, transmission bodies and body parts (hood door and frames).

A-Rank Berhad and Lb Aluminium Berhad Synergy

A-Rank Berhad and Lb Aluminium Berhad will be seeing further synergy in the foreseeable quarter after significant entry from low profile businessman - Datuk Leow Chong Howa, into A-Rank Berhad.

Datuk Leow surfaced as A-Rank Berhad substantial shareholder after acquiring 27.74% stake in April 2016. On the other hand, Datuk Leow already had 30.17% stake in LB Aluminium Berhad.

Arank is Malaysia largest manufacturer and supplier for aluminum billets, and resemble one of the leading suppliers of aluminum extrusion billets in Asia. On the other hand, Lbalum is the largest supplier of aluminum extrusion in Malaysia and too among the large player in South East Asia.

One would then easily imagine that Arank billets would be used by Lbalum to produce extrusion, forming a vertical integration in the supply chain. According to familiar industry sources, Arank will benefit greatly by becoming an upstream supplier to Lbalum, interpreting to regular steady orders, while Lbalum will enjoy a stable and competitive supply of raw material, of course with better pricing. Expanding vertically will prevent disruption in the supply of input material and reduce threats from suppliers, especially those with greater bargaining power.


Strong Aluminum come back


Aluminum had saw a break away from the long term down trend line that is plagued by oversupply, mainly from China. While most of the factory and production plant are totally shut down, restarting it will easily take up 4 to 6 months.

Aluminum is looking strong to push towards the range of 2,000 in the near term, raising great prospect to aluminum billets manufacturer like Arank in the coming quarters.

The strong rebound in the commodity prices of aluminum had saw major player such as Press Metal reacting immediately.

Medium sized aluminum billets manufacturer such as Arank will be looking to capture investor attention in the coming days.

A-Rank Berhad resting on short term up trend support line

Technical outlook indicate that Arank had good accumulation at the open market in the region of RM 0.65 to RM 0.70. Furthermore, new substantial shareholder, Datuk Leow Chong Howa, acquired his block at the price of RM 0.60.

Given the current rising aluminum price due to closure of Aluminum manufacturing plant in China, as well as increased usage of aluminum in consumer products and electric, it is feasible to annualized Arank consistent performance from 2 previous quarter of a total EPS of 6 cents to a complete EPS of 12 cents for FYE 2016.

Conclusion

Arank will be an interesting company to look out given its bright prospectus. Salient point to take note on Arank includes :
- Emergence of Datuk Leow Chong Howa as substantial shareholder, common shareholder for LB Aluminium Berhad. Datuk Leow will create synergy between the 2 companies in vertical supply chain.
- Aluminum commodity prices broke away from long term down trend prices, signalling a strong rebound, interpreting to better margin for aluminum billet manufacturer such as Arank
- Application of aluminum in more consumer product, with main consumption on automotive industry, using aluminum as a light weighting solution.
- Arank potential FYE 2016 EPS at 12 cents, valuation of PER x10 will see Arank priced at RM 1.20, potential near to 100% capital appreciation from current price of RM 0.67.


Bone's short term TP : RM 1.00

Cheers and have a nice day.

Regards,
Bone

Friday, 22 April 2016

Denko - Changing Tale of Plastic

Denko Industrial Corporation Berhad (Denko - 8176) had acquire PT Winsheng Plastic and Tooling in Indonesia as part of the group restructuring and diversification exercise in order to see higher revenue and profit. PT Winsheng Plastic and Tooling specialized in sophisticated plastic injection moulding and mould fabrication.

The expansion exercise to set up a plant in Jakarta, Indonesia resemble Denko first footprint outside Malaysia. According to group CEO Tan Chen Wei, the expansion into Indonesia is to create greater value among existing MNC client that had relocated to Indonesia.

According to Allied Market Research, the injection moulded plastic market is expected to reach USD 162 billion by Year 2020. The research project a CAGR of 4.9% from 2015 to 2020, with most of the growth focusing in the packaging of end user segment. On a regional basis, Asia Pacific will be the leading market in terms of consumption and revenues.

The application for plastic injection mould continue to grow wider, replacing heavier metal to plastic. The Automotive Industry is one of one the prime example on how plastic had been replacing heavier metal car parts. This in turn had influence on how all the products are manufactured.

The growing prospect in this plastic moulding industry couldn't be captured more timely by Denko. Currently, Denko's customer based comprises of MNC from automotive, consumer electric, information technology and industrial product sector. Prominent leading names such as Dyson, JVC Kenwood, Pioneer, Panasonic and Schneider Electric had been core clientele for Denko plastic mould injection operation.

Denko consolidation could be looking for a successful
breakout above RM 0.38 after several previous attempts.

According to familiar sources in the industry, Denko's establishment in Indonesia will continue to grow stronger as it is looking to become a turnkey contractor, manufacturing final products for clients. With much of the consumer electric giants closing down manufacturing plant and restructure operation, including outsourcing manufacturing of final product, this is a huge window of opportunity for turnkey contractor such as Denko. Playing along this line could be seeing Panasonic being the first few client to appoint Denko for their final product production after the closure of a factory in February this year.
 
Indonesia is going to be a huge growing business arena as President Joko Widodo open up 35 sector for 100% foreign ownership. Indonesia had on last year drawing in more than USD  30 billion of foreign direct investment.

Consumer electronics had been the prime pushing factor for plastic injection mould industry. Demand will continue to see pick up in Asia Pacific country, especially in new emerging market nation such as Vietnam and Myammar.

Denko is committed and positive in seeing it's revenue for FYE 2016 going past RM 100 million with annual profit of more than RM 5 million. This diversification will resemble the primary path of Denko growing potential and wealth in the future.

The future of plastic injection mould industry is bright. Advance technology in resin material, improved automation and factory connectivity all point to a bright future for plastic manufacturing, and Denko will definitely be one of the pioneer in this great movement.