Hlib reiterates ‘overweight’ rating on construction sector
KUALA LUMPUR: Hong Leong Investment Bank (HLIB) has reiterated an “overweight” rating on the construction sector on expectation of robust contract flows for the second half of this year (2H16).
Inaresearchnoteyesterday,HLIB said it expects the construction Gross Domestic Product (GDP) growth of 10.2 per cent for 2016 to outperform the overall GDP growth of 4.2 per cent.
It expects four more contracts to be rolled out in 2H16, including six viaduct packages of the Mass Rapid Transit (MRT) Two (RM7-8 billion), eight packages of the Pan Borneo Sarawak (RM10-12 billion), urban highways such as the Damansara-Shah Alam Highway (DASH)(RM4 bilion) and Sungai Besi– Ulu Kelang Expressway (SUKE) (RM4 billion) and Light Rail Transit (LRT) Three (RM9 billion).
Cat a lytic developments within the Klang Valley such as Tun Razak Exchange, Kwasa Damansara, Bukit Bintang City Centre, Cyberjaya City Centre and Bandar Malaysia will also provide contractors with another avenue of job flows.
“Collectively, these five catalytic developments have a gross development value (GDV) in excess of RM200 billion.
“Despite the softening property market, we reckon that risks of delays for these developments are low given that they are all backed by Government-owned entities,” it said, adding a key risk is a softening domestic property market which may see slower job flows from private sector developers.
For the large capitalisation contractors, HLIB highlighted Gamuda as a ‘buy’ with target price (TP) of RM5.65 per share as its top pick, given its expected earnings resurgence from the rollout of the MRT Two.
“We also like WCT as we believe it is set to witness a reversal of fortunes.
The impending listing of its construction arm and Real Estate Investment Trust (REIT) are telltale signs that a positive earnings momentum is forthcoming,” said the research firm.
For the small caps, it recommended Mitrajaya, saying it should see a revival of job wins this year, coupled with an 11 per cent three-year earnings compound annual growth rate (CAGR) at undemanding valuations. — Bernama