Construction - Shock waves to highway jobs?
Recommendation: Over Weight
A press article stated that the Selangor state government is looking to review all federal government-initiated new highway jobs in the state. This is unexpected but not hugely negative for the sector as highway jobs comprise less than 15% of total outstanding works of RM150bn, and account for a minimal share of the tender book of most contractors under our coverage. The biggest loser by our estimates would be Mudajaya. The rest are not heavily exposed to highways that are likely to be at risk. Maintain Overweight. Gamuda, which has zero exposure to highways, remains our top big cap pick. Muhibbah Engineering, which is keen to pursue packages from the awarded and approved WCE, is still our preferred small/mid-cap pick.
What Happened
Malaysian Reserve reported that 1) Selangor MB Azmin Ali said the state government will scrutinise all federal infrastructure proposals in Selangor, following the disagreement over the water deals. 2) As at Dec 2014, the Selangor government has yet to begin executing 494, or 64.7% of the 763 development projects approved under the 10th Malaysia Plan (10MP). 3) Sources said that the state government may also call off the Dash (highway) project, amid pressure from anti-Dash lobbyists.
What We Think
This news is unexpected, but we believe the negative impact to the construction and materials sector and stocks under our coverage is likely to be minimal. Seven major highway jobs under the 10th Malaysia Plan (10MP) worth RM21bn in total makes up less than 15% of the RM150bn overall incoming jobs. From our analysis, we conclude that major highways that have been approved and awarded (EKVE, Duke extension and WCE) should be safe, but Dash, Suke and Skip could be under heavy scrutiny, going by the cancellation of Kidex recently (see Figure 1 above). The good news is that tender books of most contractors under our coverage are not heavily exposed to new highways, except for Mudajaya.
What You Should Do
We would not interpret this news as a major setback at this juncture, and still prefer the sector's big cap and liquid stocks with strong order book growth potential i.e. Gamuda. We also continue to prefer Muhibbah Engineering; small/mid-cap stock with strong themes driven by oil & gas/marine related infra that have received Petronas's FID.
Source: CIMB Daybreak - 13 March 2015
Recommendation: Over Weight
A press article stated that the Selangor state government is looking to review all federal government-initiated new highway jobs in the state. This is unexpected but not hugely negative for the sector as highway jobs comprise less than 15% of total outstanding works of RM150bn, and account for a minimal share of the tender book of most contractors under our coverage. The biggest loser by our estimates would be Mudajaya. The rest are not heavily exposed to highways that are likely to be at risk. Maintain Overweight. Gamuda, which has zero exposure to highways, remains our top big cap pick. Muhibbah Engineering, which is keen to pursue packages from the awarded and approved WCE, is still our preferred small/mid-cap pick.
What Happened
Malaysian Reserve reported that 1) Selangor MB Azmin Ali said the state government will scrutinise all federal infrastructure proposals in Selangor, following the disagreement over the water deals. 2) As at Dec 2014, the Selangor government has yet to begin executing 494, or 64.7% of the 763 development projects approved under the 10th Malaysia Plan (10MP). 3) Sources said that the state government may also call off the Dash (highway) project, amid pressure from anti-Dash lobbyists.
What We Think
This news is unexpected, but we believe the negative impact to the construction and materials sector and stocks under our coverage is likely to be minimal. Seven major highway jobs under the 10th Malaysia Plan (10MP) worth RM21bn in total makes up less than 15% of the RM150bn overall incoming jobs. From our analysis, we conclude that major highways that have been approved and awarded (EKVE, Duke extension and WCE) should be safe, but Dash, Suke and Skip could be under heavy scrutiny, going by the cancellation of Kidex recently (see Figure 1 above). The good news is that tender books of most contractors under our coverage are not heavily exposed to new highways, except for Mudajaya.
What You Should Do
We would not interpret this news as a major setback at this juncture, and still prefer the sector's big cap and liquid stocks with strong order book growth potential i.e. Gamuda. We also continue to prefer Muhibbah Engineering; small/mid-cap stock with strong themes driven by oil & gas/marine related infra that have received Petronas's FID.
Source: CIMB Daybreak - 13 March 2015
