Saturday, January 11, 2014

M'sia Construction - Return of the upcycle (CIMB)

Construction - Return of the upcycle
Long Term: Over Weight

The ETP and private sector-driven jobs are the two key themes for the sector in 2014. Public transport and rail upgrades are catalysts for the longer term, while excitement in the medium term will come from job rollouts in the private sector. The sector's upcycle is intact. MRT, the largest contract under the ETP, is likely to return to investors' radar in 2014 as execution of MRT 2 gains momentum. Meanwhile, private sector jobs should fill the gap and mitigate the risks of project sequencing. The sector's upcycle should continue in 2014, after a moderation in 2H13. We maintain Overweight on the sector. Gamuda, which offers a good price point, is still our top pick.


MRT, the largest contract under the ETP, is likely to return to investors' radar in 2014 as execution of MRT 2 gains momentum. Meanwhile, private sector jobs should fill the gap and mitigate the risks of project sequencing. The sector's upcycle should continue in 2014, after a moderation in 2H13. We maintain Overweight on the sector. Gamuda, which offers a good price point, is still our top pick.

Construction Index outperformed KLCI in 2013
2013 was generally a recovery year for the construction sector as job awards took centre stage, benefiting contractors across-the-board. After two years of decline in 2011 (-13.5%) and 2012 (-4.2%), the KL Construction Index (KLCON Index) rose by 17.4% in 2013, outpacing the KLCI's 10.5% gain. Construction stocks under our coverage rose by 22% 0n average.

ETP and private sector jobs: key themes in 2014
The execution of the Economic Transformation Programme's (ETP) Greater KL initiative is still on track. The impact of the government's move to space out contracts (project sequencing) in order to manage the budget deficit appears to be selective, and it is likely to delay projects that are still under feasibility study like the RM30bn-40bn KL-Singapore high-speed rail (HSR). The good news is that the KVMRT remains a top priority. MRT 2 will be the next major project under the ETP, with an estimated value of RM25bn. We also expect private sector-type projects to fill the gap until larger government-funded projects regain traction. We estimate a total project value of as much as RM36bn.

Construction upcycle to return
The sector's macro indicators look set to turn around in 2014. The moderation in construction sector GDP growth in the past two quarters should reverse, in line with the return of government spending under the ETP and Budget 2014. This should underpin the sector's next upcycle phase.


Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 07/01/14

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