Construction - Small is the new big
Recommendation: Over Weight
During our 2-week KL-Singapore-HK roadshow, we highlighted Gamuda, Muhibbah Engineering and Salcon (NR) as the key plays for 2H15. Most clients agreed that Gamuda is at an attractive price point due to MRT 2, Penang PTMP and the water story. We sensed more interest in Muhibbah this time around due to its US$ leverage, better chances of winning more Rapid packages and cheapest valuations (10x FY16 P/E) among small/mid-cap contractors. We also recapped our view that Salcon is still undervalued and is shaping up to be the next big water infra play, driven also by its new recurring income venture. The sector remains an Overweight, with Gamuda and Muhibbah staying as our top picks.
What Happened
We marketed the Malaysia construction sector to over 74 fund managers from 32 funds in KL, Singapore and Hong Kong. We laid out the reasons for our belief that the sector offers a better outlook in 2H15 than it had in the later part of 2H14 when the global oil price crash held sway. We explained why we are bullish on three of the seven sector sub-segments (public transport, oil & gas infra and water infra) which are major beneficiaries of the estimated c.RM150bn jobs backed by the implementation of the upcoming 11th Malaysia Plan (11MP). We observed that investors in Hong Kong, KL and Singapore were more selective compared to last year.
What We Think
Overall, investors were still keen on liquid big-cap construction plays that could be re-rated in 2H15 but the discussions were skewed towards the small/mid cap segment as some investors held the view that the big caps were largely over-owned. HK investors were generally more cautious about Malaysia due to political and funding risks (including the weak ringgit). Some funds were also interested to hear more about other non-rated recovery stocks that we had flagged last year. Malaysian investors were the most receptive to our small/mid cap ideas and were more encouraged to learn more about the beneficiary of the pick-up of awards in Rapid, LRT 3, BRT, likely more clarity on the HSR.
What You Should Do
We believe there is more upside to the sector drivers. This should support further re-rating of Gamuda (MRT, Penang PTMP, water deals) and Muhibbah Engineering (oil & gas infra, marine/port) in 2H15. Recovery of foreign shareholdings should emerge as one of the factors too.
Source: CIMB Daybreak - 14 April 2015
Recommendation: Over Weight
During our 2-week KL-Singapore-HK roadshow, we highlighted Gamuda, Muhibbah Engineering and Salcon (NR) as the key plays for 2H15. Most clients agreed that Gamuda is at an attractive price point due to MRT 2, Penang PTMP and the water story. We sensed more interest in Muhibbah this time around due to its US$ leverage, better chances of winning more Rapid packages and cheapest valuations (10x FY16 P/E) among small/mid-cap contractors. We also recapped our view that Salcon is still undervalued and is shaping up to be the next big water infra play, driven also by its new recurring income venture. The sector remains an Overweight, with Gamuda and Muhibbah staying as our top picks.
What Happened
We marketed the Malaysia construction sector to over 74 fund managers from 32 funds in KL, Singapore and Hong Kong. We laid out the reasons for our belief that the sector offers a better outlook in 2H15 than it had in the later part of 2H14 when the global oil price crash held sway. We explained why we are bullish on three of the seven sector sub-segments (public transport, oil & gas infra and water infra) which are major beneficiaries of the estimated c.RM150bn jobs backed by the implementation of the upcoming 11th Malaysia Plan (11MP). We observed that investors in Hong Kong, KL and Singapore were more selective compared to last year.
Overall, investors were still keen on liquid big-cap construction plays that could be re-rated in 2H15 but the discussions were skewed towards the small/mid cap segment as some investors held the view that the big caps were largely over-owned. HK investors were generally more cautious about Malaysia due to political and funding risks (including the weak ringgit). Some funds were also interested to hear more about other non-rated recovery stocks that we had flagged last year. Malaysian investors were the most receptive to our small/mid cap ideas and were more encouraged to learn more about the beneficiary of the pick-up of awards in Rapid, LRT 3, BRT, likely more clarity on the HSR.
What You Should Do
We believe there is more upside to the sector drivers. This should support further re-rating of Gamuda (MRT, Penang PTMP, water deals) and Muhibbah Engineering (oil & gas infra, marine/port) in 2H15. Recovery of foreign shareholdings should emerge as one of the factors too.
Source: CIMB Daybreak - 14 April 2015
