Maintain overweight: We are upbeat on construction stocks as we believe they will continue to generally outperform the market from 4Q10, buoyed by news flow from: (i) The infrastructure development for the Greater KL National Key Economic Area (NKEA) under the Economic Transformation Programme (ETP), particularly, the RM36 billion MRT project; and (ii) The RM7 billion Ampang and Kelana Jaya LRT line extension project.
In addition, news flow can also come from other public projects earmarked for implementation under the 10th Malaysia Plan, “high impact” projects worth RM62.7 billion “under consideration” to be implemented via private finance initiative (PFI), backed by a RM20 billion “facilitation fund”.
Also, the market is likely to react positively to the announcement of the formal awards of federal land parcels to “master developers” and the subsequent farming out of the subdivided smaller land parcels to various developers.
Given the scale of the projects and that most construction boys are already involved in property business, they are likely to get a piece of the action.
We are raising our indicative fair value of Malaysian Resources Corp Bhd by 28% from RM1.94 to RM2.49, largely to reflect higher margins from its KL Sentral property project.
Our top “tactical” pick for the sector is Gamuda (“trading buy”; FV = RM4.51) as we believe its share price will be buoyed by the sustained news flow
from the RM36 billion KL MRT project. Our top “value” pick for the sector is Sunway (“outperform”, FV = RM2.35) due to its undemanding valuations, coupled with its strong earnings visibility stemming from its firm construction margins and growing non-construction profits. — RHB Research Institute, Oct 4This article appeared on the Live it! page, The Edge Financial Daily, October 5, 2010.
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