Construction sector
Remain overweight: Construction stocks under our coverage have gained 9%-35% year to date (YTD) led by Hock Seng Lee (HSL; +35%) and Sunway (+21%), outperforming the FBM KLCI's +4%.
News flow should pick up in the coming months, driving share prices further. Our top pick is WCT, which should benefit from its multi-presence in the Middle East, East and Peninsular Malaysia. We recently upgraded IJM to a buy, and remain buyers of Gamuda, Sunway, HSL and Loh & Loh.
As expected, 1Q10 was quiet in terms of project awards as pre-qualifications, tenders and evaluations were ongoing. Except for IJM which firmed up the supplementary Besraya concession leading to RM600 million worth of works, and the Sinohydro-Loh & Loh joint venture (JV) which won the RM828 million Hulu Terengganu hydroelectric project civil works, there were no significant construction wins (less than RM500 million).
Our records show RM3.1 billion of domestic job wins in 2010-YTD versus RM9.7 billion in 2009.
Last week's award of works on two roads leading to the Murum Dam in Sarawak worth RM247 million lifts hopes that the remaining two to three Murum road packages would be awarded soon.
Likely beneficiaries are HSL and Loh & Loh. The Edge weekly this week reports that Syarikat Prasarana Negara would announce the main contractors pre-qualified (pre-Q) for the first package of the Klang Valley LRT extension (Kelana Jaya line) soon. An award is expected in two months. Six players including UEM, IJM and Putrajaya Perdana are in the running. We understand that WCT, Gamuda and Sunway have also participated in the pre-Q.
The groundbreaking ceremony for the Pahang-Selangor water transfer project was held on April 6, 11 months after the letter of acceptance was given for the RM1.3 billion tunnel works package (in May 2009) to the Shimizu-Nishimatsu-UEM-IJM JV.
The pumping station package worth RM300 million is close to being awarded to a Japanese-led consortium. At the Sepang LCCT project, the award for the main terminal and satellite building works worth RM1 billion is pending - the press reported in February that five contractors had been shortlisted.
As we have explored in our sector update early this year, 2010 would be a year of events; themes are the unveiling of the 10th Malaysia Plan (10MP) and the run-up to the Sarawak state election. The 10MP would be unveiled in June, which would see a larger private sector role in the form of private finance initiative (PFI) projects.
We expect higher development spend for East Malaysia under the 10MP supported by the New Economic Model's high-income society target. The Sarawak state election (due by May 2011) and the Sarawak Corridor of Renewable Energy (Score) should continue to drive interest in Sarawak stocks. - Maybank IB, April 20
This article appeared in The Edge Financial Daily, April 21, 2010.
Remain overweight: Construction stocks under our coverage have gained 9%-35% year to date (YTD) led by Hock Seng Lee (HSL; +35%) and Sunway (+21%), outperforming the FBM KLCI's +4%.
News flow should pick up in the coming months, driving share prices further. Our top pick is WCT, which should benefit from its multi-presence in the Middle East, East and Peninsular Malaysia. We recently upgraded IJM to a buy, and remain buyers of Gamuda, Sunway, HSL and Loh & Loh.
As expected, 1Q10 was quiet in terms of project awards as pre-qualifications, tenders and evaluations were ongoing. Except for IJM which firmed up the supplementary Besraya concession leading to RM600 million worth of works, and the Sinohydro-Loh & Loh joint venture (JV) which won the RM828 million Hulu Terengganu hydroelectric project civil works, there were no significant construction wins (less than RM500 million).
Our records show RM3.1 billion of domestic job wins in 2010-YTD versus RM9.7 billion in 2009.
Last week's award of works on two roads leading to the Murum Dam in Sarawak worth RM247 million lifts hopes that the remaining two to three Murum road packages would be awarded soon.
Likely beneficiaries are HSL and Loh & Loh. The Edge weekly this week reports that Syarikat Prasarana Negara would announce the main contractors pre-qualified (pre-Q) for the first package of the Klang Valley LRT extension (Kelana Jaya line) soon. An award is expected in two months. Six players including UEM, IJM and Putrajaya Perdana are in the running. We understand that WCT, Gamuda and Sunway have also participated in the pre-Q.
The groundbreaking ceremony for the Pahang-Selangor water transfer project was held on April 6, 11 months after the letter of acceptance was given for the RM1.3 billion tunnel works package (in May 2009) to the Shimizu-Nishimatsu-UEM-IJM JV.
The pumping station package worth RM300 million is close to being awarded to a Japanese-led consortium. At the Sepang LCCT project, the award for the main terminal and satellite building works worth RM1 billion is pending - the press reported in February that five contractors had been shortlisted.
As we have explored in our sector update early this year, 2010 would be a year of events; themes are the unveiling of the 10th Malaysia Plan (10MP) and the run-up to the Sarawak state election. The 10MP would be unveiled in June, which would see a larger private sector role in the form of private finance initiative (PFI) projects.
We expect higher development spend for East Malaysia under the 10MP supported by the New Economic Model's high-income society target. The Sarawak state election (due by May 2011) and the Sarawak Corridor of Renewable Energy (Score) should continue to drive interest in Sarawak stocks. - Maybank IB, April 20
This article appeared in The Edge Financial Daily, April 21, 2010.
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