source: [i3investor]
Construction - Shifting to the private side
Author: value_investor | Publish date: Tue, 19 Nov 11:30 | >> Read article in Blog website
Long Term: Over Weight
Medium-term sector drivers will shift to projects beyond MRT. Details from the recent Budget 2014 support our view and should address the risks associated with project sequencing. Private sector-type contracts should fill the gap before larger public sector-type jobs return. This angle should be positive for the laggards and undervalued stocks within our coverage, which should benefit from the build-out of highways, power plants and oil & gas-related infra. We highlight IJM Corp, Muhibbah Engineering and Mudajaya. We keep Gamuda as our top pick in view of its asset monetisation, rail jobs and potential special dividends. The sector remains an Overweight.
This angle should be positive for the laggards and undervalued stocks within our coverage, which should benefit from the build-out of highways, power plants and oil & gas-related infra. We highlight IJM Corp, Muhibbah Engineering and Mudajaya. We keep Gamuda as our top pick in view of its asset monetisation, rail jobs and potential special dividends. The sector remains an Overweight.
Private sector-type jobs to fill the gap
We do not believe that there will be a medium-term vacuum in domestic project rollout as the risks of delays from project sequencing are balanced by private sector-type projects in 2014. We expect private sector-type projects to fill the gap before larger government-funded projects take off. MRT Corp's recent update confirmed that the execution process for MRT 2 will pick up in 2014 but it also said that the tender process will only commence towards the later part of 2014. MRT awards can only begin in early-2015 while it is still too premature to play the beneficiaries of the KL-Singapore high-speed rail (HSR). This gives way to an estimated RM36bn worth of private sector-led contracts in 2014.
Highways, power plants and oil & gas
Apart from rail upgrades, Budget 2014 also shined a spotlight on private-public partnership (PPP) projects backed by a RM2.7bn allocation for 2014. This should drive the execution of major highways, power plants and oil & gas-related infra. Key projects include the RM6bn West Coast Expressway (WCE), RM3bn expansion of Kuantan Port, power plant extensions and other new highways (Dash, Kidex and Duke2).
Undervalued and laggards
In the medium term, we expect IJM Corp (WCE and Kport), Muhibbah Engineering (best performer YTD; undervalued) and Mudajaya (laggard; power plant and highways) to re-rate on the back of these themes.
