Analysts’ four favoured sectors

B U S I N E S S

Saturday March 31, 2007

Analysts’ four favoured sectors

Stories by KATHY FONG

KUALA LUMPUR: The plantation, construction, property and oil and gas (O&G) sectors are favoured by analysts for the second quarter.

Despite the sharp rise in the price of plantation stocks that fuelled the bull run on Bursa Malaysia since last October, this sector remains attractive.

Analysts said the current upcycle for crude palm oil (CPO) prices was different from the previous ones due to factors such as the high crude oil price and the emerging demand for biofuel.

“The high crude oil price of above the US$60 per barrel makes biodiesel a better substitute,” said TA Securities head of research Kaladher Govindan.

Biodiesel as an alternative energy to fossil fuel will continue to be the selling point for plantation stocks, given that more CPO would be needed by the upcoming biodiesel plants.

“We expect CPO prices to remain strong in the second half, due to demand from the biodiesel plants coming on stream towards year-end,” Hwang-DBS Vickers Securities said in its second-quarter regional equity strategy report.

Hwang-DBS said expectation of lower production growth from Kalimantan due to drought at the end of last year would also support CPO prices, going forward.

Against the backdrop of growing demand and tightening supply, the outlook for the timber sector appears good owing to firm demand from China and India, and Japan's economic recovery.

“The crackdown on illegal logging will help to lift timber prices when supply shrinks,'' said SJ Securities head of research Cheah King Yoong.

Meanwhile, the construction sector, which had been languishing in the past three years, is expected to recover as more public projects roll out.

Analysts said the revival of the RM5bil West Coast Highway and double-tracking railway, which had been shelved during the financial crisis, showed the government's seriousness in stimulating economic growth.

“The Penang monorail is another Government project that we expect to be launched in the coming months.

“We also expect the Government to work on the inter-state water transmission project,” said Kaladher.

CIMB-Principal Asset Manage-ment Bhd head of investment research Chow Quee Lee said the kickstarting of the mega public projects would have spillover effects on the building materials, cement and steel sectors.

Many stockbroking houses now have an overweight rating on the property sector, thanks to the government's recent incentive measures.

“The relaxation of Foreign Investment Committee rules, scrapping of the limit on loans taken by foreigners and the abolishment of real property gains tax will spur demand for properties, especially in the high-end segment,” said Hwang-DBS Vickers.

The research house believes the bullish market and the multiplier effects from the Ninth Malaysia Plan would help to drive buying interest in properties.

The O&G sector is also expected to benefit from projects to be awarded by Petroliam Nasional Bhd (Petronas) and Murphy Oil.

Kaladher said Petronas was projected to give out RM1bil worth of contracts for oil transportation.

The national oil giant had also allocated some RM3bil for oil platform projects, he added.

“We expect earnings visibility for O&G stocks to improve this year, thanks to the higher capital expenditure by Petronas and the rollout of new projects from the Kikeh field in Sarawak,” said Hwang-DBS Vickers.

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