KUALA LUMPUR: CIMB Equities Research retains its overweight call on the construction sector with Gamuda and Muhibbah Engineering as top picks.
It said on Tuesday it stays positive on its three preferred segments: 1) public transport, 2) downstream oil & gas infra, and 3) backlog of water infra jobs, as these remain the beneficiaries of potential projects awards.
“Gamuda remains our top big cap pick. Muhibbah Engineering, our preferred mid cap, provides the largest exposure to the sustained oil & gas downstream infra. For water infra plays, we still like Salcon. Maintain sector Overweight,” it said.
CIMB Research said year-to-date sector indicators are increasingly pointing to an eventful year for the domestic construction space.
It said momentum of job awards in 1Q16 could be sustained throughout 2016.
“We estimate that over 90% of potential value of awards in 2016 will focus on the civil/infra and transport infrastructure space. This could bring the value of jobs awarded in 2016 to the sector’s 5-year high.
“Our compiled total contracts awarded to listed contractors in January-March amounted to RM24bil and was driven by MRT 2. 2012 was when the construction sector was showered with back-to-back MRT 1 awards.
“However, in 2016, the key drivers of major upcoming jobs are backed by more than just the MRT story. Our revised total value of jobs in the pipeline for 2016 amounts to RM136bil; 15% higher than our last count as at end-2015,” said CIMB Research.
The research house said about 60% of the RM136bil total value of major jobs in the pipeline has a fairly good chance of materialising. It estimated a 30% surge in overall value of awards in the sector.
CIMB Research estimated over 50 large value packages are in the pipeline across 13 major civil/infra contracts, including those related to the massive MRT 2 and Pan Borneo Highway Sarawak.
The emergence of four new PDP companies with turnkey and project management roles and China-contractor led projects are net positive for the sector, as it keeps project execution in check and mitigates funding limitations.
“It also provides subcontracting opportunities for selected domestic players with previous relationships.
“Share prices of construction stocks under our coverage are only up 5.5% on average YTD following the 3.3% average decline as at end-2015.
“The performance of share prices throughout 2015 was dampened by concerns over the continuity of contracts in view of the oil price’s collapse. Judging by the strong 1Q16 period for job awards, we think that there are more potential sector catalysts in store,” it said.
GAMUDA (5398) - Gamuda and Muhibbah are CIMB top construction picks
http://www.thestar.com.my/business/business-news/2016/04/05/gamuda-and-muhibbah-are-cimb-top-construction-picks/
