Domestic contracts in 3Q12 totaled RM3.1bn, down by over 40% y-o-y and 39% q-o-q, as the awards of MRT-related jobs reach a tail-end. That said, we see potential spike in jobs flow when the impending 13th General Election is over. Jobs which may be in the spotlight are the Gemas-Johor Bahru double-tracking project, the West Coast Expressway, and the Langat 2 water treatment plant. Hence, our OVERWEIGHT call on the sector stays, with Gamuda (BUY, FV: RM4.33) and
KimLun (BUY, FV: RM2.48) still our top picks.
MRT-related awards approach tail-end. Our compilation of Bursa announcements shows that the value of contracts awarded to public-listed contractors in 3Q12 totalled RM3.4bn. Of that, RM3.1bn was made up of local jobs, marking a significant drop of 40% y-o-y and 39% q-o-q. This is not entirely surprising as we are approaching the tail-end of the dishing out of MRT-related jobs, with 90% of the Sg Buloh-Kajang (SBK) line’s available packages already given out. Following the awards of 3 elevated station packages totalling RM732m yesterday, we understand that all civil works contracts have now been awarded.
GE13: The multi-billion dollar question. The KLCI Construction index has underperformed the benchmark FBM KLCI by some 14% YTD, despite a staggering >RM21bn (+>100% y-o-y) in domestic jobs handed out in 9MFY12. This is mainly due to
investors’ worries that jobs flow may dry up post-SBK line and their preference for sectors which provide recurring earnings amidst the current political uncertainty. While these concerns are valid, the jobs flow should pick up again after the country holds its much-anticipated General Election before the April 2013 deadline, especially if the ruling coalition wins by a bigger majority. Meanwhile, the sector will see no shortage of developments relating to the RM7bn West Coast Expressway, the RM8bn Gemas-Johor Bahru double-tracking project, the RM3.7bn Langat 2 water treatment plant, as well as foundation works on Tun Razak Exchange and the RAPID Pengerang project. In the medium to longer term, we believe that projects involving the two remaining KV MRT lines worth over RM30bn, the proposed RM30bn high-speed rail link from KL to Singapore, the Sg Besi-Ulu Kelang Expressway, the Damansara-Shah Alam Highway and the Kinrara-Damansara Expressway would be rolled out progressively.
OVERWEIGHT. We maintain OVERWEIGHT on the construction sector as its underperformance is unjustified given the strong contract wins YTD. Things certainly look rosier for 2013, during which more meaningful earnings contribution from works carried
out on the KV MRT SBK line may be expected. We continue to like Gamuda (BUY, FV: RM4.33) among the big-caps while there are ample opportunities in store for KimLun (BUY, FV: RM2.48) within our small-cap universe.
KimLun (BUY, FV: RM2.48) still our top picks.
MRT-related awards approach tail-end. Our compilation of Bursa announcements shows that the value of contracts awarded to public-listed contractors in 3Q12 totalled RM3.4bn. Of that, RM3.1bn was made up of local jobs, marking a significant drop of 40% y-o-y and 39% q-o-q. This is not entirely surprising as we are approaching the tail-end of the dishing out of MRT-related jobs, with 90% of the Sg Buloh-Kajang (SBK) line’s available packages already given out. Following the awards of 3 elevated station packages totalling RM732m yesterday, we understand that all civil works contracts have now been awarded.
GE13: The multi-billion dollar question. The KLCI Construction index has underperformed the benchmark FBM KLCI by some 14% YTD, despite a staggering >RM21bn (+>100% y-o-y) in domestic jobs handed out in 9MFY12. This is mainly due to
investors’ worries that jobs flow may dry up post-SBK line and their preference for sectors which provide recurring earnings amidst the current political uncertainty. While these concerns are valid, the jobs flow should pick up again after the country holds its much-anticipated General Election before the April 2013 deadline, especially if the ruling coalition wins by a bigger majority. Meanwhile, the sector will see no shortage of developments relating to the RM7bn West Coast Expressway, the RM8bn Gemas-Johor Bahru double-tracking project, the RM3.7bn Langat 2 water treatment plant, as well as foundation works on Tun Razak Exchange and the RAPID Pengerang project. In the medium to longer term, we believe that projects involving the two remaining KV MRT lines worth over RM30bn, the proposed RM30bn high-speed rail link from KL to Singapore, the Sg Besi-Ulu Kelang Expressway, the Damansara-Shah Alam Highway and the Kinrara-Damansara Expressway would be rolled out progressively.
OVERWEIGHT. We maintain OVERWEIGHT on the construction sector as its underperformance is unjustified given the strong contract wins YTD. Things certainly look rosier for 2013, during which more meaningful earnings contribution from works carried
out on the KV MRT SBK line may be expected. We continue to like Gamuda (BUY, FV: RM4.33) among the big-caps while there are ample opportunities in store for KimLun (BUY, FV: RM2.48) within our small-cap universe.
Source: OSK
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