Construction Sector : Piling Contractors: The Game Plans Overweight

STOCK FOCUS OF THE DAY

Construction Sector : Piling Contractors: The Game Plans             Overweight

Our recent round of meetings with key listed piling/foundation contractors, namely, Econpile, Pintaras Jaya and Ikhmas Jaya reinforce our positive stance on the specialist segment.        Generally, the players acknowledge that the piling market is highly competitive at present due to:- (1) Spare capacity disengaged from MRT1 (which is at the tail-end of its construction), and (2) the soft property market. However, it should recover strongly in 1H2017 as piling/foundation sub-contracts from MRT2, Pan Borneo Highway, SUKE and DASH start to hit the market in a more significant way. In this report, we highlight their game plans.

                We maintain our OVERWEIGHT stance for the construction sector. The prospects of the local construction sector are bright, backed by various rail projects (MRT2, LRT3 and KL-Singapore HSR), highways (Pan Borneo Highway, SUKE, DASH and DUKE extension) and mammoth property developments (TRX, KL118, Kwasa Damansara, Bukit Bintang City Centre, Pavilion Damansara Heights and Bandar Malaysia).

                We like the piling segment given that:- (1) Most infrastructure projects in the market have massive elevated structures (MRT, LRT and urban highways), and (2) The continual shift towards high-rise developments (due to land scarcity) in the property space. These projects require extensive piling and foundation works.

       We maintain our BUY calls for Econpile and Ikhmas, and value them at RM1.83/share and RM0.84/share, respectively, based on 13x forward earnings, at a slight premium to our forward target PE of 10-12x for small-cap construction stocks, to reflect a relatively less competitive piling segment vis-à-vis general contracting. Pintaras is currently not under our coverage.

Others :

Bumi Armada : New CFO, more impairments?    Hold

Technical Strategy : Weekly Technical Analysis

QUICK TAKES

Media Sector : Win-win for Star’s sale of Capital & Red FM to Astro          Neutral

Property Sector : Money-lending licence: Matter to be brought to Cabinet Neutral

ECONOMIC HIGHLIGHTS

Malaysia : Economy is most likely to bottom out in 1Q2017

NEWS HIGHLIGHTS

Plantation Sector : All systems go for B10 biodiesel; shoring up CPO prices, reducing stock seen

Logistics Sector : Century Logistics MD to stay on, no plans to sell stake to Koreans

Manufacturing Sector : Eonmetall sees bigger orders for machinery products this year

Property Sector : Naim launching more medium-cost residential projects to ride on demand