Construction set to power market

Construction set to power market



By LOONG TSE MIN

PETALING JAYA: Apart from the highly buoyant oil and gas sector, the construction sector is expected to power the stock market in the second half, said analysts.

In the short term, the construction sector is also expected to receive a boost from the anticipated announcements on the Northern Corridor Economic Region “in the next two to three weeks,” TA Securities research head Kaladher Govindan told StarBiz.

Moreover, there was still further implementation of projects in the eastern corridor encompassing Kelantan, northern Terengganu and western Pahang, he said.

Kaladher said construction counters could also expect a boost from announcements in the upcoming annual budget in September.

OSK Investment Bank head of research Kenny Yee also picks construction as one of the promising sectors in the second half. He favours Gamuda Bhd and IJM Corp Bhd as well as KL Sentral developer and construction player Malaysian Resources Corp Bhd (MRCB).

In a report released on July 5, OSK said it was not surprised that MRCB was not named as one of the shareholders of the Penang Outer Ring Road project and maintained its “trading buy” call on the counter.

“We like MRCB's KL Sentral assets and the Eastern Dispersal Link gives the company a steady cashflow,” the report said.

Meanwhile Kaladher is promoting Ahmad Zaki Resources Bhd, Ranhill Bhd and Bina Puri Holdings Bhd.

In a July 19 report, TA said it was positive on Ahmad Zaki's acquisition of Eastern Pacific Industrial Corp Bhd (EPIC).

“Based on a simple interest rate calculation of 6%, we expect the EPIC acquisition to improve group earnings by 1.6% - 3%, depending on EPIC’s effective tax rate of 30% - 40%,” it said.

Furthermore, Ahmad Zaki's local operations remain bright, given its strong niche in the east coast of the peninsula.

As budgeted under the Ninth Malaysia Plan, eastern Peninsular Malaysia was getting a bigger pie compared with the previous plan, said TA's report.

“In the meantime, the group’s earnings would be sustainable with its RM1.2bil orderbook, which should sustain the group for the next 24-30 months,” the research house said.

TA said in a report last week that Ranhill's most exciting division would be its newly created energy division, “and we will be proven right if the news about the company striking oil in Citarum Block turns out to be true”.

The research house said although the gestation period was long, the reward of the new business segment, if successful, would be huge.

On Bina Puri, TA said the company's outstanding orderbook exceeding RM1.2bil was “significantly large” considering its smallish size, with a market cap of less than RM300mil.

Surprisingly more than 50% of the company's orderbook is made up of overseas projects focused on Thailand.

More overseas contracts are in the pipeline for the company, said TA.

“Based on our discussion, the group is finalising RM700mil worth of contracts in Libya to build 3,000 houses,” it added.

TA believes this is the first of a total of three phases that could be awarded to Bina Puri.

Kenanga Investment Research head Yeonzon Yeow concurred that construction was one of the sectors that could run during the rest of the year, favouring stocks like Muhibbah Engineering (M) Bhd and LCL Corp Bhd.

Muhibbah had on July 6 announced that it had successfully secured a RM1.1bil contract to build the South Klang Valley Expressway.

Yeow expects the new contract to impact on earnings for the financial year ending Dec 31, 2008.