HSL, Gamuda top picks for construction sector
KUCHING: Sarawakian Hock Seng Lee Bhd (HSL) and Gamuda Bhd (Gamuda) were the sector leaders pegged by AmInvestment Bank Bhd (AmInvestment Bank) in its strategy report outlining their views of the second half of 2017 (2H17).
The research house in an analysis on the sector picked Gamuda and HSL respectively for its large-cap and small-cap picks.
It believed HSL’s earnings were at the inflection point as work on its key projects, namely the Pan Borneo Sarawak Highway, Kuching Centralised Sewerage (Phase 2) and Miri Centralised Wastewater Management (Phase 1), has finally gathered momentum after initial hiccups.
“HSL is poised to benefit from the massive infrastructure developments in East Malaysia including roads/bridges, ports, hydro power plants and water/ wastewater facilities,” it said in the report.
“Its earnings visibility is good, backed by an outstanding construction order book of RM2.4 billion which will keep it busy for the next three or four years.
Meanwhile, AmInvestment Bank said Gamudawass the best proxy to the booming construction sector in Malaysia given its dominant role in the MRT (as the project delivery partner [PDP] and tunnelling contractor) and its involvement in the Pan Borneo Highway.
“It has booked itself a ticket to ride on the next infrastructure/ property boom in Penang via its PDP role in the Penang Transport Master Plan (PTMP) — an initiative by the Penang state government to improve the road network and public transport system in Penang Island/ Seberang Prai, to be funded by reclaimed land and rights to reclaim land,” it added.
This was thanks to the slew of contact rollouts in recent years of two mega projects, namely, the MRT2 project and Pan Borneo Sarawak Highway, various expressway projects, as well as mammoth property developments throughout the country.
“We have an overweight stance on the construction sector for the next six to 12 months,” AmInvestment stated. “We believe the biggest appeal of the sector lies in its strong earnings visibility backed by players’ record order books.
“These record order books will keep the players busy for the next two to three years, stretching to four or five years in some cases.
“The players’ record order backlogs are likely to go higher over the medium term, if not sustained at the least, as another wave of mega projects get off the ground.”
In the basic infrastructure space, the research house saw that the government remains committed to spending on roads, bridges, schools, hospitals, public housing, water and electricity supply.
In Budget 2017, the gross development expenditure for 2017 is projected at RM46 billion which was up 2.2 per cent from the RM45. billion estimated for 2016.
“Our overweight stance on the construction sector may be further strengthened, and valuations of construction stocks may re-rate further on the emergence of telltale signs pointing towards the ECRL and/or KL–Singapore HSR becoming a reality.