Stock Name: HSL
Company Name: HOCK SENG LEE BHD
Research House: AMMB
Construction sector
Overweight: In this report, we highlight our views on the upcoming 10th Malaysia Plan (10MP) ' due to be tabled in parliament today. The total development allocation during the 9MP was RM200 billion (inclusive of projects earmarked under the Private Finance Initiative or PFI: RM220 billion).
The total outlay was raised by another RM30 billion during the mid-term review of the 9MP. Out of the original development allocation under the 9MP, some RM47billion was set aside for infrastructure and utilities. For the upcoming 10MP, we gather that total allocation could either be flat or lower than the amount under the previous plan.
Unlike the expansionary stance taken during the 9MP, we believe infrastructure spending would likely moderate under the 10MP ' amid a need to curb or lower the federal fiscal deficit. In our view, renewed emphasis should be given to projects that have significant economic linkages to various sectors of the Malaysian economy.
However, what could excite the market under the 10MP is the inclusion of fresh projects or resumption of deferred jobs (such as the Gemas-Johor Bahru double-tracking project, West Coast Expressway). We are also hopeful that the plan would provide more clarity on the timeline of existing big-ticket jobs.
The key focus would likely be on two major areas (1) improvement of basic infrastructure in the rural areas; and (2) upgrading of public transportation in the Klang Valley, including the rollout of extension works for the LRT systems (RM7 billion).
From our checks on the ground, we understand that Malaysian contractors ' including those under the PFI public-private collaboration scheme ' have mooted several unsolicited bids. This would include select building (such as universities) or infrastructure projects as well as upgrading of several federal trunk roads.
The implementation of projects under the PFI scheme is not something new, with RM20 billion being earmarked under this method during the 9MP. However, the actual rollout of such projects has been far and few, where funding is still an issue. Similarly, we are unsure about the status of the new MRT lines jointly proposed by Gamuda Bhd (Gamuda) and MMC Corp Bhd (MMC) given the project's massive RM30 billion tag and associated funding concerns.
Sarawak could be the one bright spot, where we expect a further increase in development allocation ahead of its state elections, due by May 2011. Under the 9MP, Sarawak received 7% of total development allocation. More funds are likely to flow in the form of basic infrastructure needed to kick-start the development at Score.
From our channel checks, some key projects from Sarawak likely under the 10MP would include: (1) balance of works under the Kuching sewerage and flood mitigation projects (RM3 billion); (2) Sibu flood mitigation project (RM1 billion); and (3) at least RM4 billion-RM5 billion worth of road projects (including access roads to proposed energy sites).
Key beneficiaries would include homegrown contractors ' Naim Holdings Bhd (buy, fair value RM4.60/share) and Hock Seng Lee Bhd (buy, RM2/share). ' AmResearch, June 9
This article appeared in The Edge Financial Daily, June 10, 2010.
Company Name: HOCK SENG LEE BHD
Research House: AMMB
Construction sector
Overweight: In this report, we highlight our views on the upcoming 10th Malaysia Plan (10MP) ' due to be tabled in parliament today. The total development allocation during the 9MP was RM200 billion (inclusive of projects earmarked under the Private Finance Initiative or PFI: RM220 billion).
The total outlay was raised by another RM30 billion during the mid-term review of the 9MP. Out of the original development allocation under the 9MP, some RM47billion was set aside for infrastructure and utilities. For the upcoming 10MP, we gather that total allocation could either be flat or lower than the amount under the previous plan.
Unlike the expansionary stance taken during the 9MP, we believe infrastructure spending would likely moderate under the 10MP ' amid a need to curb or lower the federal fiscal deficit. In our view, renewed emphasis should be given to projects that have significant economic linkages to various sectors of the Malaysian economy.
However, what could excite the market under the 10MP is the inclusion of fresh projects or resumption of deferred jobs (such as the Gemas-Johor Bahru double-tracking project, West Coast Expressway). We are also hopeful that the plan would provide more clarity on the timeline of existing big-ticket jobs.
The key focus would likely be on two major areas (1) improvement of basic infrastructure in the rural areas; and (2) upgrading of public transportation in the Klang Valley, including the rollout of extension works for the LRT systems (RM7 billion).
From our checks on the ground, we understand that Malaysian contractors ' including those under the PFI public-private collaboration scheme ' have mooted several unsolicited bids. This would include select building (such as universities) or infrastructure projects as well as upgrading of several federal trunk roads.
The implementation of projects under the PFI scheme is not something new, with RM20 billion being earmarked under this method during the 9MP. However, the actual rollout of such projects has been far and few, where funding is still an issue. Similarly, we are unsure about the status of the new MRT lines jointly proposed by Gamuda Bhd (Gamuda) and MMC Corp Bhd (MMC) given the project's massive RM30 billion tag and associated funding concerns.
Sarawak could be the one bright spot, where we expect a further increase in development allocation ahead of its state elections, due by May 2011. Under the 9MP, Sarawak received 7% of total development allocation. More funds are likely to flow in the form of basic infrastructure needed to kick-start the development at Score.
From our channel checks, some key projects from Sarawak likely under the 10MP would include: (1) balance of works under the Kuching sewerage and flood mitigation projects (RM3 billion); (2) Sibu flood mitigation project (RM1 billion); and (3) at least RM4 billion-RM5 billion worth of road projects (including access roads to proposed energy sites).
Key beneficiaries would include homegrown contractors ' Naim Holdings Bhd (buy, fair value RM4.60/share) and Hock Seng Lee Bhd (buy, RM2/share). ' AmResearch, June 9
This article appeared in The Edge Financial Daily, June 10, 2010.
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