Construction - Negative sentiment overplayed
Recommendation: Over Weight
Taking our cue from the unchanged RM49bn development expenditure and the government's focus on public transport infra, we believe a negative scenario of deferment of projects in light of the falling oil price should not be overplayed. This is also backed by private sector jobs. Sentiment on the sector is likely to gradually recover. We like Gamuda (our top big-cap pick) for its exposure to MRT and Penang transport infra. Muhibbah, our small/mid-cap pick, remains oversold but offers unchanged order book growth potential. We upgrade Benalec from reduce to Add. Maintain Overweight.
Sentiment on the sector is likely to gradually recover. We like Gamuda (our top big-cap pick) for its exposure to MRT and Penang transport infra. Muhibbah, our small/mid-cap pick, remains oversold but offers unchanged order book growth potential. We upgrade Benalec from reduce to Add. Maintain Overweight.
Optimistic on the flipside
The KL CON index outperformed the KLCI in 2014, but with a marginal growth of 0.4% vs. KLCI's decline of 5.7%. Construction stocks under our coverage declined 8% on average. The larger cap contractors performed relatively better compared to the smaller caps. Looking into 2015, the bulk of the infra projects in the pipeline are largely private-sector driven and should not be directly impacted by the reduced oil price. Major government-initiated projects of national interest should continue to stay on the cards. On the flipside, due to the cheaper raw material cost environment (fuel, cement and steel), this would be a good time for the government and private sectors to implement projects. We remain optimistic about Petronas's-funded projects that have received the final investment decision (FID), mainly the ones in Rapid and Pengerang.
RM150bn worth of jobs
The total c.RM150bn worth of projects is arguably the sector's highest value of outstanding projects at any one time in the last decade. Based on our analysis, 75% of the total 16 major jobs carry a low risk of cancellation, deferment or delays while the balance 25% shows medium to high risk mainly due to 1) financial closure, 2) funding structure, 3) project structure and 4) bilateral agreements for cross-border contracts.
Be selective
We continue to like Gamuda as MRT 2 (PDP and underground contract), PTMP and a better valuation for the divestment of Splash are key rerating factors. Muhibbah has been oversold with an unchanged order book outlook. In our view, chances of securing packages from Rapid in the medium term look good. In our small cap space, we upgrade Benalec from Reduce to Add. Likely steady rerating is underpinned by positive expectations in securing the EIA approval for Tanjung Piai in South Johor.
Source: CIMB Daybreak - 28 January 2015
Recommendation: Over Weight
Taking our cue from the unchanged RM49bn development expenditure and the government's focus on public transport infra, we believe a negative scenario of deferment of projects in light of the falling oil price should not be overplayed. This is also backed by private sector jobs. Sentiment on the sector is likely to gradually recover. We like Gamuda (our top big-cap pick) for its exposure to MRT and Penang transport infra. Muhibbah, our small/mid-cap pick, remains oversold but offers unchanged order book growth potential. We upgrade Benalec from reduce to Add. Maintain Overweight.
Sentiment on the sector is likely to gradually recover. We like Gamuda (our top big-cap pick) for its exposure to MRT and Penang transport infra. Muhibbah, our small/mid-cap pick, remains oversold but offers unchanged order book growth potential. We upgrade Benalec from reduce to Add. Maintain Overweight.
Optimistic on the flipside
The KL CON index outperformed the KLCI in 2014, but with a marginal growth of 0.4% vs. KLCI's decline of 5.7%. Construction stocks under our coverage declined 8% on average. The larger cap contractors performed relatively better compared to the smaller caps. Looking into 2015, the bulk of the infra projects in the pipeline are largely private-sector driven and should not be directly impacted by the reduced oil price. Major government-initiated projects of national interest should continue to stay on the cards. On the flipside, due to the cheaper raw material cost environment (fuel, cement and steel), this would be a good time for the government and private sectors to implement projects. We remain optimistic about Petronas's-funded projects that have received the final investment decision (FID), mainly the ones in Rapid and Pengerang.
RM150bn worth of jobs
The total c.RM150bn worth of projects is arguably the sector's highest value of outstanding projects at any one time in the last decade. Based on our analysis, 75% of the total 16 major jobs carry a low risk of cancellation, deferment or delays while the balance 25% shows medium to high risk mainly due to 1) financial closure, 2) funding structure, 3) project structure and 4) bilateral agreements for cross-border contracts.
Be selective
We continue to like Gamuda as MRT 2 (PDP and underground contract), PTMP and a better valuation for the divestment of Splash are key rerating factors. Muhibbah has been oversold with an unchanged order book outlook. In our view, chances of securing packages from Rapid in the medium term look good. In our small cap space, we upgrade Benalec from Reduce to Add. Likely steady rerating is underpinned by positive expectations in securing the EIA approval for Tanjung Piai in South Johor.
Source: CIMB Daybreak - 28 January 2015
