KIMLUN : 目标价 RM2.48 (OSK- 4/10/2012)

Construction - Building Hopes on Post-GE Projects

Domestic contracts in 3Q12 totaled RM3.1bn, down by over 40% y-o-y and 39% q-o-q,  as  the  awards  of  MRT-related  jobs  reach  a  tail-end.  That  said,  we  see  potential spike  in  jobs  flow  when  the  impending  13th  General  Election  is  over.  Jobs  which may  be  in  the  spotlight  are  the  Gemas-Johor  Bahru  double-tracking  project,  the West  Coast  Expressway,  and  the  Langat  2  water  treatment  plant.  Hence,  our OVERWEIGHT  call  on  the  sector  stays,  with  Gamuda  (BUY,  FV:  RM4.33)  and KimLun (BUY, FV: RM2.48) still our top picks.

MRT-related  awards  approach  tail-end.  Our  compilation  of  Bursa  announcements shows  that  the  value  of  contracts  awarded  to  public-listed  contractors  in  3Q12  totalled RM3.4bn. Of that, RM3.1bn was made up of local jobs, marking a significant drop of 40% y-o-y and 39% q-o-q. This is not entirely surprising as we are approaching the tail-end of the  dishing  out  of  MRT-related  jobs,  with  90%  of  the  Sg  Buloh-Kajang  (SBK)  line's available  packages  already  given  out.  Following  the  awards  of  3  elevated  station packages  totalling  RM732m  yesterday,  we  understand that all civil  works contracts have now been awarded.  

GE13:  The  multi-billion  dollar  question.  The  KLCI  Construction  index  has underperformed  the  benchmark  FBM  KLCI  by  some  14%  YTD,  despite  a  staggering >RM21bn (+>100% y-o-y) in domestic jobs handed out in 9MFY12. This is mainly due to investors' worries that jobs flow may dry up post-SBK line and their preference for sectors which  provide  recurring  earnings  amidst  the  current  political  uncertainty.  While  these concerns  are  valid,  the  jobs  flow  should  pick  up  again  after  the  country  holds  its  much-anticipated  General  Election  before  the  April  2013  deadline,  especially  if  the  ruling coalition  wins  by  a  bigger  majority.  Meanwhile,  the  sector  will  see  no  shortage  of developments  relating  to  the RM7bn West  Coast  Expressway,  the  RM8bn  Gemas-Johor Bahru  double-tracking  project,  the  RM3.7bn  Langat  2  water  treatment  plant,  as  well  as foundation  works  on  Tun  Razak  Exchange  and  the  RAPID  Pengerang  project.  In  the medium to longer term, we believe that projects involving the two remaining KV MRT lines worth over RM30bn, the proposed RM30bn high-speed rail link from KL to Singapore, the Sg  Besi-Ulu  Kelang  Expressway,  the  Damansara-Shah  Alam  Highway  and  the  Kinrara-Damansara Expressway would be rolled out progressively.

OVERWEIGHT.  We  maintain  OVERWEIGHT  on  the  construction  sector  as  its underperformance is unjustified given the strong contract wins YTD. Things certainly look rosier  for  2013,  during  which  more  meaningful  earnings  contribution  from  works  carried out  on  the  KV  MRT  SBK  line may  be  expected. We  continue  to  like  Gamuda  (BUY,  FV: RM4.33)  among  the  big-caps  while  there  are  ample  opportunities  in  store  for  KimLun (BUY, FV: RM2.48) within our small-cap universe.