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Construction sector upgraded to overweight [09-02-2012]  
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OSK Research has upgraded the construction sector to overweight from neutral in line with the current bullish global equity markets and the rush of positive news in the next few months that are likely to fire up the sector to new highs this year.

It said that although the share prices of construction stocks had rallied by an average 19 per cent in January this year, it still sees plenty of trading opportunities in the run-up to the official awards of contracts by the government.

"With Malaysia's 13th general election likely to be held this year, we believe the ruling government will continue with its push to create a feel-good climate, which we believe it will fuel the implementation of mega-billion ringgit construction projects in Malaysia in the run-up to the polls," it said in a research report released yesterday.

Some noteworthy projects are the RM20 billion Sungai Buloh-Kajang (SBK) line of the Klang Valley My Rapid Transit (KV MRT), the long-awaited RM7 billion West Coast Expressway (WCE) as well as the RM7 billion southern portion of the Electrified Double Tracking (EDT) from Gemas to Johor Baru.


More contracts are likely to be awarded in Sabah and Sarawak as evident in the recent federal budget allocation of RM500 million to fund the development of the new Samalaju deepsea port in Bintulu.

"That said, we expect a more vibrant flow of news in the next quarter or so in relation to the Sarawak Corridor of Renewable Energy region, with jobs involving infrastructure, rural roads, power stations and dams likely," it added.

Back in Peninsular Malaysia, all eyes will be on the implementation of the one-of-its-kind KV MRT project estimated to cost RM36 billion.

Two of the eight packages for elevated civil works entailing the building of viaduct guideways and other associated works were recently awarded to IJM Corp Bhd and Ahmad Zaki Resources Bhd at a project value of RM974 million and RM764 million respectively.

"We believe the remaining six packages will be awarded progressively by June while the winner of the tunneling portion is likely to be made known by April," it said.

Among the stocks under its coverage, OSK continues to like Gamuda Bhd, TRC Synergy Bhd and Kimlun Corp Bhd.

Gamuda, together with MMC, has been jointly appointed project delivery partner for the KV MRT.

TRC Synergy is the only contractor pre-qualified for all categories, while Kimlun is an indirect beneficiary via its tunnel lining segments.

OSK also noted that the long-delayed WCE would favour IJM the most.

"Although IJM's effective stake in WCE will be a small 15 per cent and the jobs will be awarded based on open tender, we understand from sources that the group is likely to be the frontrunner to bag at least half of the construction jobs involved, with players like Mudajaya Group Bhd eyeing the remaining portion," it said.

OSK also expects the news flow to quicken in the second half of this year as the civil works involved are likely to kick off towards end-2012.

For the Gemas-Johor Baru EDT, OSK believes that Gamuda is the most likely candidate to secure the contract given its competitive edge and previous experience in other portions of the EDT.

For the coming 2011 fourth quarter results, OSK expects to "see some sequential improvement at the bottom line level, given the relatively stable foreign exchange rate, barring any one-off provisions or downward revisions in profit margins".

Although the contract awards in the near term are unlikely to translate into meaningful earnings over the next few quarters, OSK sees this as the key re-rating catalysts for the sector, leveraging on the government's "pump-priming" and handing out more contracts prior to the general election.

Source:THE STAR
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