Not too long ago many experts screamed of high oil price above USD100 is here to stay. Some even went further to say it is new normal for oil price. Now we know how wrong these experts were. When oil price went up above the magical number USD100, everyone got worry and rightly so. This is because price of goods will follow suit. Pump petrol went up. Transportation fee went up. Construction cost went up. But the good thing is kangkong price went down. Much to the relief of some people. Joke aside. But what surprise me is when oil price tumbling down, the same fear is being re-play again. Ain't we suppose to rejoice when oil price coming down. Construction industry will be the first to benefit from lower oil price. Contractors who have secured construction works way before the drop of oil price will enjoy substantial saving when they carry out the construction works.
This situation is quite the similar during the shortage of mild steel bar crisis in 2007/08. Contractors submitted their tender based on prevailing steel price and because of the uncertainty of steel price was so bad that property developers had to share the risk of price fluctuation with the contractors, or else no contractor is willing to take up the job. Eventually steel price came down. Many savvy contractors were laughing to the bank when the price of steel bar dropped from high above RM4,000 per tonne to round RM2,000 plus because their tender price was pegged at high steel bar price of RM4,000 per tonne. The situation now is like a re-play of 2007/08 crisis but this time is on different commodity. Oil. This time around though, I hardly heard construction package being pegged to oil price. So, if you have tendered and secured any construction works way before the tumbling of oil price, you will certainly enjoy certain savings.
With this in mind, we have been monitoring construction companies for some time now especially those that have secured jobs way before the plunge of oil price. The drop in oil price has not spare the KLSE and it was badly hit since September last year. Due to the negative sentiment, almost all stocks were hit including those that are fundamentally strong. However, not all are gloomy. With stock price battered, this makes it more compelling to re-look at some these construction companies. As the word goes, when people is fearful, you must be greedy. With oil price seems to have stabilised or atleast does not seem will go back to USD100 level and coupled with market sentiment has somewhat improved, it is opportune time to re-look into some construction stocks. One that is particularly stands out is Gadang.
At current price, it is trading at low PE. More importantly, it yields 2.6% based on 4 cents dividend for FY2014 and I think FY2015 will show a better yield than this. With strong order book stood at above RM 1 billion and with lower oil price now and not to mention the company is tendering for highway jobs, this is a deal one must not missed.
This is my first stock selection for this year for another long journey that we called - long term investment.