Construction Sector stock picks: IJM, Gamuda, WCT, MRCB
HWDBS - Overweight on Construction
• We remain positive on the Construction sector despite its underperformance, as we expect this to reverse once election fears are lifted. The MRT project is off to a good start with 80% of the project possibly awarded by July, earlier than expected.
• Besides the MRT, the larger projects to be awarded by end 2013 are West Coast Expressway (WCE), New Pantai Expressway, KLIFD project, the two more MRT lines (Circle and Radial), southern double tracking, PLUS highway widening, and other privatisation projects.
• The main risk for the sector is politics, which has hindered share price performance before. While this is a sentiment issue, we think fears are excessive. A case in point is the MRT tunnelling project which was awarded to MMC-Gamuda JV in a transparent manner. It was clearly the lowest bidder and did not have to utilise its pricing advantage or the Swiss Challenge.
• Our top pick is Gamuda because it is the most leveraged proxy to the MRT project. We also like its chances for the southern double tracking project, given there will be economies of scale from its soon-to-be-completed northern double-tracking at end 2014 (civil works by end 2013). Its orderbook could rise to RM16bn from c.RM6bn currently if it wins the other two MRT lines and the southern double-tracking. Reiterate BUY rating and RM4.95 TP.
Construction Sector stock picks: IJM, Gamuda, WCT, MRCB
1Q12 Results Summary (click to enlarge)
by HWDBS Vickers.
