Investors in M'sia told to be wary
Construction analysts in Malaysia are largely "Neutral" on the sector and have advised investors to stay on the sidelines until the risks from the 13th general election recede.
In a report, Alliance Research analyst Jeremy Goh downgraded the sector to “Neutral” from “Overweight”, arguing that the period ahead of the impending polls was “an opportune time to cash out”.
“Although the first quarter of 2013 registered strong job flows, we expect this to taper off in the second quarter, as the caretaker government cannot award new contracts, and private-sector jobs may take a backseat until the polls are over,” he said.
Goh noted that while contract flows and construction growth had been robust, the uncertainties surrounding the sector have heightened following the dissolution of parliament last Wednesday.
“There is strong incentive for ‘support buying’ to kick in from now until polling, but likely centred on the FTSE Bursa Malaysia KL Composite Index [FBM KLCI]-component stocks. With no index representation, construction stocks could underperform during this period,” he explained.
Alliance Research’s top picks include Gamuda Bhd and Kimlun Corp Bhd. “Those weary of election results should look at Eversendai Corp Bhd, which has limited Malaysian exposure,” it said.
The brokerage added that domestic contract awards hit a record 27.9 billion ringgit (about Bt270 billion) last year, helped mostly by My Rapid Transit (MRT) works, while the first quarter of this year saw job awards worth 4.4 billion ringgit. Despite the sector’s resilient fundamentals, Goh believes “it is now tempting to take some money off the table” as the KL Construction Index has outperformed the FBM KLCI by 4.5 per cent year-to-date, adding that the perception of uncertainty alone was enough to dampen stock prices.
Sizeable projects expected to be tendered out this year include the Southern Double Track (7 billion-8 billion ringgit), West Coast Expressway (WCE) (5.6 billion ringgit), Serendah-Port Klang Track (2 billion ringgit), Kinrara-Damansara Expressway (1.5 billion ringgit), Langat 2 (1.2 billion ringgit), and earthworks for the Tun Razak Exchange (1 billion ringgit) and the Refinery & Petrochemical Integrated Development, or RAPID (500 million ringgit), Alliance Research said.
“As for the MRT, we gather that the Sungai Buloh-Serdang radial line could be implemented first instead of the KL circle line. The targeted timeline is for initial awards to take place in the second quarter of 2014, and we estimate a total value of more than 22 billion ringgit,” the firm said.
