Maintain OVERWEIGHT. Construction contract awards
remained strong in 9M13 and would support sector's earnings in 2014. Job
flows would also persist in 2014 driven by both public and private
spending on infrastructure, property, and onshore O&G related
projects. News flow should stay positive on major infrastructure project
awards and corporate activities involving water and highway assets.
Valuations are undemanding as the sector trades at 12x 12M forward PER,
lagging the KLCI’s 16x. We stay Overweight on the sector; our top pick
is IJMC.
2013: Successful execution. The first full year of the KVMRT 1 construction in 2013 is a testament to Malaysia’s execution ability, boosting confidence. However, fiscal prudence on the part of the government raised uncertainties on the timing of the implementation of the other projects during the year. Continued work delays in several key projects have also led to disappointment. Nevertheless, job awards in 9M13 were still sustained at MYR67b (-5% YoY), mainly driven by private sector investments and non-residential projects.
2014 outlook: The return of Mega Projects. Sentiment would be lifted by major projects that are inching closer to crystalisation including the KVMRT 2, West Coast Expressway, Kuantan Port expansion and Gemas-Johor double track rail. We also expect construction jobs to flow from the government’s development expenditure on infrastructure and rural developments allocated under Budget 2014. Upcoming key O&G projects and government land developments would bolster construction works. Companies with overseas exposure could further boost their orderbooks on increasing infrastructure boom in the Middle East.
3… 2… 1… Corporate action! We expect the sector abuzz with corporate activities as well as issues such as the Selangor water saga continuing in 2014. Construction companies are looking to monetize cash generative infrastructure assets including highways, ports, power plants and water treatment plants. Gamuda and IJMC, the main highway concession owners listed in Malaysia, are mulling over the monetisation of their concession assets via separate listing or business trust. Gamuda has taken the lead with its acquisition of another 40% stake in Shah Alam Highway. This could be a prelude to further infrastructure asset acquisitions including highways and rails.
Undemanding valuations. The KLCon Index surged 17% in 2013, outperforming the KLCI’s 10% gain. Valuations remain undemanding as construction stocks are trading at an average 12x 12M forward PER, below the KLCI’s 16x. All construction stocks under our coverage are BUYs with strong outstanding orderbooks and/or diversified income sources from property, building materials, or infrastructure businesses spurring earnings growth. IJMC is our top pick for its potential major construction orderbook replenishment and strong unbilled property sales. CMS is our thematic play on accelerating developments in Sarawak’s Corridor of Renewable Energy (SCORE).
Source: Maybank Research - 10 Jan 2014
2013: Successful execution. The first full year of the KVMRT 1 construction in 2013 is a testament to Malaysia’s execution ability, boosting confidence. However, fiscal prudence on the part of the government raised uncertainties on the timing of the implementation of the other projects during the year. Continued work delays in several key projects have also led to disappointment. Nevertheless, job awards in 9M13 were still sustained at MYR67b (-5% YoY), mainly driven by private sector investments and non-residential projects.
2014 outlook: The return of Mega Projects. Sentiment would be lifted by major projects that are inching closer to crystalisation including the KVMRT 2, West Coast Expressway, Kuantan Port expansion and Gemas-Johor double track rail. We also expect construction jobs to flow from the government’s development expenditure on infrastructure and rural developments allocated under Budget 2014. Upcoming key O&G projects and government land developments would bolster construction works. Companies with overseas exposure could further boost their orderbooks on increasing infrastructure boom in the Middle East.
3… 2… 1… Corporate action! We expect the sector abuzz with corporate activities as well as issues such as the Selangor water saga continuing in 2014. Construction companies are looking to monetize cash generative infrastructure assets including highways, ports, power plants and water treatment plants. Gamuda and IJMC, the main highway concession owners listed in Malaysia, are mulling over the monetisation of their concession assets via separate listing or business trust. Gamuda has taken the lead with its acquisition of another 40% stake in Shah Alam Highway. This could be a prelude to further infrastructure asset acquisitions including highways and rails.
Undemanding valuations. The KLCon Index surged 17% in 2013, outperforming the KLCI’s 10% gain. Valuations remain undemanding as construction stocks are trading at an average 12x 12M forward PER, below the KLCI’s 16x. All construction stocks under our coverage are BUYs with strong outstanding orderbooks and/or diversified income sources from property, building materials, or infrastructure businesses spurring earnings growth. IJMC is our top pick for its potential major construction orderbook replenishment and strong unbilled property sales. CMS is our thematic play on accelerating developments in Sarawak’s Corridor of Renewable Energy (SCORE).
Source: Maybank Research - 10 Jan 2014
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