‘CONSTRUCTION STOCK PRICES SCALING UP’
CMS and Ann Joo among companies to benefit from mega projects rollout
BUILDING materials companies such as Cahya Mata Sarawak Bhd (CMS) and Ann Joo Resources Bhd are poised for sunny days in the next six to 12 months.
Analysts said this was underpinned by record order book demand of the construction players, and higher-than-expected prices for selected building materials.
A Bloomberg poll of seven research houses indicated a potential return of 15.5 per cent for Ann Joo for the next 12 months from its curent level, with a median target price of RM3.80.
Ann Joo, seen as the dominant local steel players with 20 per cent of the market share, is gradually heading there. It has gained more than 50 per cent year-todate, although closing 0.6 per cent lower to RM3.28 yesterday.
CMS, meanwhile, has risen nearly seven per cent year-todate, as eight research firms expected a potential return of more than 13 per cent over the next 12 months from the current level.
AmInvestment Bank Bhd said the Sarawak-based company could hit RM5.15 during the period, while the most conservative UOB Kay Hian forecast put the target price at RM3.59.
CMS, the sole cement manufacturer in Sarawak and one of the dominant local players supplying building materials, closed 0.5 per cent higher to RM4.08 yesterday.
AmResearch Sdn Bhd is “overweight” on all sub-segments of the building materials sector, except the cement industry in Peninsular Malaysia.
The likes of CMS and Ann Joo, AmResearch said, would benefit from mega projects, such as the RM55 billion East Coast Rail Link, Mass Rail Transit 2 (RM32 billion), Pan Borneo Highway (RM16 billion), as well as megascale township developments, such as Tun Razak Exchange and KL118 towers.
Other potential projects in the pipeline include the Pan Borneo Sabah Highway (RM12.8 billion), Light Rail Transit 3 (RM9 billion), Gemas-Johor Baru electrified double-tracking rail (RM7.5 billion) and Kuala Lumpur–Singapore high-speed rail (KL-Singapore HSR) (RM50 billion to RM60 billion).
“These mega projects will further boost the demand for building materials such as steel, cement and aluminium,” said AmResearch, which is “overweight” on the sector.
“Ann Joo is able to maintain better margin in comparison to its peers in the industry due to cost optimisation in production as it adopts the hybrid BF-EAF technology,” it added.
AmResearch said its “overweight” stance on the sector could be enhanced by higherthan-expected average selling price (ASP) for selected building materials, like steel and aluminium.
“Steel ASP has shown a recovery since the fourth quarter of last year with the ongoing steel supply cuts in China (due to global steel glut caused by China in 2015) by 50 million tonnes by end of this month and cost-push factors (rise in raw material prices).”
It added that local steel ASP would be further boosted with the extension of safeguard measures for imported steel after a preliminary investigation by Ministry of International Trade and Industry to impose safeguard duties for steel reinforcing bar and steel wire rods and deformed bar in coil till April 2020.
Average steel ASP stands at RM2,050 per tonne with AmResearch forecasting RM1,890 and RM2,022 for this year and next, respectively.
Aluminium demand, meanwhile, was likely to grow modestly, driven by the transportation and construction segments.
ASP for aluminium was set to remain stable due to the sturdy demand as well ongoing reforms in China to cut excess supply coupled with the move to address pollution caused by the local aluminium smelters, said the firm.