AmWatch - Construction Sector : 11MP highlights OVERWEIGHT, 22 May 2015

SECTOR FOCUS OF THE DAY

Construction Sector : 11MP highlights     OVERWEIGHT

Under the 11th Malaysia Plan (11MP), a sum of RM260bil has been allocated for development spending over the next five years (i.e. 2016-2020) – a 13% increase from the RM230bil allocated under the 10MP. During this period, the government has pencilled in a growth of ~10% p.a. for the construction sector. 

Several key infrastructure projects announced earlier continue to anchor the fresh allocation for development spending over the next five years. They are Klang Valley MRT 2 (Sg.Buloh-Selayang-Putrajaya); Klang Valley LRT 3 (Bandar Utama-Klang); KL-Singapore High Speed Rail; five new power plants with a combined capacity of 7,626MW; new highways outside Klang Valley (i.e. Pan Borneo Highway, Central Spine Road, Kota Bharu-Kuala Krai); and expansion of water & sewerage networks. We continue to advocate a bottom-up approach in screening potential beneficiaries of the 11MP. The Klang Valley MRT and LRT projects will be a key feature under the 11MP. We foresee the MMC-Gamuda JV as the frontrunner to bag the tunnelling contract for the upcoming MRT2 line. As for the LRT 3 project, we think that MRCB-George Kent JV is a strong contender for the PDP contract (which is likely to be awarded in June). We also like Econpile and Kimlun’s chances in bagging some contracts for the upcoming rail-related works.

Apart from Langat 2, the 11MP is focused on ramping up new water treatment plants (WTP) or upgrading existing facilities in states where water reserve margins are low. JAKS Resources could be a candidate for sewerage jobs. As for rural infrastructure, we expect integrated transmission line specialist Sarawak Cable to continue benefiting from more jobs to electrify Sarawak’s interior. While not exclusively mentioned, we expect some jobs to come out from the Sarawak portion of the RM27bil Pan Borneo Highway; home-grown Hock Seng Lee is a potential beneficiary. Outside the scope of 11MP, we once again see Gamuda as a favourite to land the PDP role for the RM27bil Penang Transport Master Plan.

Others :

MRCB : Recurring earnings boost from 2Q15 onwards     BUY

Kossan Rubber : 1QFY15: A solid start     BUY

Econpile Holdings : Secures a RM27mil job in Section 13, PJ           BUY

YTL Power : Earnings skewed by higher tax rates               HOLD

UEM Sunrise : Lacking near-term catalysts            HOLD

Puncak Niaga : Hopeful of a resolution within two months            HOLD

Press Metal : Samalaju plant shutdown for a month        HOLD

Alam Maritim : A weak start to the year                 HOLD

Econ Watch : Enhancing productivity growth in 11MP

QUICK TAKE

Parkson Holdings : Transformation program underway; Smaller SSSG contraction for PRG’s 1Q   BUY

NEWS HIGHLIGHTS

Automobile sector : Perodua aims to sell one million Myvi cars by end-2017

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.