Building Materials : Upbeat times ahead OVERWEIGHT

SECTOR FOCUS OF THE DAY

Building Materials : Upbeat times ahead               OVERWEIGHT

We have an OVERWEIGHT view on the Building Materials sector for the next 6-12 months. We are positive on all sub-segments other than the cement industry in Peninsular Malaysia. The prospects of the sector are bright, underpinned by the stronger demand for building materials based on record order books of the construction players in the country. These include various mega projects such as the East Coast Rail Link (ECRL) (RM55bil), MRT2 (RM32bil), Pan Borneo Highway (RM16b), and mega-scale township development such as TRX, KL118 and others. Other potential projects in the pipeline include the Pan Borneo Sabah highway (RM12.8bil), LRT3 (RM9bil), Gemas–Johor Bahru electrified double-tracking rail (RM7.5bil), and Kuala Lumpur–Singapore high-speed rail (KL-Singapore HSR) (RM50-60bil). These mega projects will further boost the demand for building materials such as steel, cement and aluminium.

Our OVERWEIGHT stance on the Building Materials sector could be further strengthened by higher-than-expected ASP for selected building materials like steel and aluminium. Unlike steel and aluminium, the outlook for cement in the peninsula remains lacklustre. Cement ASP continues to depress in 1H2017 mainly due to the oversupply within Peninsular Malaysia. Earnings for peninsular cement players were further pushed down to a record low. For year 2017, cement ASP is forecast to be at RM245/tonne.  Our top large-cap and small-cap picks are Cahya Mata Sarawak and Ann Joo Resources respectively.

STOCKS ON RADAR

Kelington Group,Malaysia Steel Works,Pantech Group,Mikro MSC

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