Good Stocks for 2014 (01) - Booming Construction Sector

Most analysts expected a boom in the construction sector with the end of war. After four years we are gradually seeing results. Companies in the industry have shown impressive results during last four quarters and continue to operate with full order book which will continue into foreseeable future.

We have three companies listed under the sector in CSE. But I have excluded DOCK as it's involving mainly in ship building and repairs with very small market share in civil construction industry but included TKYO as it's directly related to the construction sector, though it's listed in the manufacturing sector in CSE.

Out of AEL and KAPI (MTD Walkers), KAPI is well diversified in the industry. It’s mainly operating in civil construction industry with considerable exposure for marine engineering and power generation. It’s the only private power producer in Northern Province.

KAPI is currently trading at a considerable discount to AEL when comparing both PE and PBV. AT PE terms KAPI should increase to Rs.40/- to match with AEL and in PBV terms should reach 58/- to catch up AEL. KAPI is relatively illiquid than AEL as owners stake is 92% and another 2% is owned by couple of fund managers who are in for long term effectively leaving only 6% for market players.

But both will give good prospects in near future.

TKYO is currently benefiting from low raw material prices giving it good margins though cement is a price controlled item in Sri Lanka. By 2014 budget proposals government decided to impose a CESS on imported cement which will be a plus factor for TKYO.

Construction Sector :  Valuation Guide - Based on EPS and PBV in the attachment

Previous Coverage on Wed May 29, 2013 :

http://research.srilankaequity.com/t731-booming-construction-sector