Tuesday 3 April 2012

Maintain Overweight on Construction Sector In View of Strong Jobs Flow


1Q12’s domestic contracts soared 100% y-o-y and q-o-q to RM13.3bn, boosted by the progressive rollout of contracts from the KV MRT SBK line, which is expected to be completed by July 2017. We see the same factor fuelling the jobs flow for the remainder of 2012, as 6 out of the total 8 packages for the elevated portion of the SBK line  worth a combined RM5bn-RM6bn  have  yet to be awarded.  Maintain OVERWEIGHT on the sector as the deluge of positive news in the next few months is likely to fire up the sector this year, with Gamuda (BUY, FV: RM4.58) and KimLun (BUY, FV: RM2.37) as our high conviction Top Buys.

Kicking off with a bang. From a compilation of Bursa announcements, the total value of contracts awarded in 1Q12 amounted to RM16.0bn, up by over 100% both q-o-q and y-oy. These comprise RM13.0bn in local awards, with the Klang Valley My Rapid Transit (KV MRT) Sungai Buloh-Kajang (SBK) line  making  up a sizeable  RM10.1bn while foreign contracts made up the remaining RM2.9bn. Excluding the  SBK related jobs,  local  jobs made up RM2.9bn of the total, rising 4.9% y-o-y and 27.8% q-o-q, although their share of the total value of contracts was down 43.6ppts y-o-y and 11.2ppts q-o-q to 49.5%, partly due to Scomi Engineering clinching a RM2.6bn contract to develop a monorail system in Manaus in Brazil with 3 consortium partners.

Benefitting from KV  MRT  SBK line.  During 1Q12,  a sizeable RM10.1bn worth of contracts was dished out in relation to the KV MRT SBK line. Being the first of the 3 lines under the massive KV MRT project, the SBK line is targeted to be fully operational by mid-2017. To date, 27 works packages have been awarded to public listed and unlisted contractors, while tenders and awards for the remaining 63 packages are expected to be mostly completed by 4Q12. Some of the key packages that have been awarded include Package v5 to IJM (TRADING BUY, FV: RM6.55), Package v6 to AZRB (NEUTRAL, FV:RM0.91), supply of segmental box girders from v1 to v4 to KimLun (BUY, FV: RM2.37), as well as the RM8.2bn underground portion which went to MMC-Gamuda.

Source: OSK188

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