KUCHING: Construction jobs are expected to be dished out as Sarawak moves closer to its 10th state elections slated to be held this year, according to OSK Research Sdn Bhd (OSK Research).
CONTINUED SUPPORT: OSK Research believes that most of the Sarawak construction jobs will revolve on basic infrastructure in the rural areas to ensure continued political support.
“We believe that most of these jobs will revolve on basic infrastructure in the rural areas to ensure continued political support,” it said in its research report yesterday.
OSK Research also believed that the Sarawak elections would take place sometime mid-year.
This was based on its current view that the general election was likely to be held towards year-end, which was well after Sarawak’s July deadline, thereby leading to its assumptions that holding concurrent elections was unlikely.
The research firm outlined tenders for RM2 billion worth of road jobs which recently closed including the 73 kilometre (km) road to the Baleh dam, 60km to the Baram dam, 22km to the Limbang dam and 136km to the Nanga Merit coal mine.
“In addition, we understand that the government has set aside RM1 billion for a mass affordable housing project and another RM1 billion for rural infra and utilities. Other upcoming projects in the near term are the Mukah Airport extension, Tanjung Manis Airport extension and skills training institute.”
To support this sentiment, the research firm conducted a share price study on home grown Sarawakian contractors, who they predicted were the ultimate beneficiaries of heightened infra contracts since most jobs in the state were usually awarded to them.
In this report, the research firm studied the share price performance of five construction related Sarawak companies during the previous state election in 2006, namely Naim Holdings Bhd (Naim), Hock Seng Lee Bhd (HSL), KKB Engineering Bhd (KKB), Cahya Mata Sarawak Bhd (CMS) and Zecon Bhd (Zecon).
“Six months prior to the 2006 state election, the shares of Naim, HSL and KKB all strongly outperformed the FBM KLCI by 16 to 23 per cent. While CMS underperformed over the six month horizon, the stock did outperform the FBM KLCI by 7.4 per cent in the three months before the polls.”
On the other hand, OSK Research noted that Zecon’s 9.8 per cent and 4.3 per cent under-performance over the sixth-month and third-month horizon prior to the election was most likely due to isolated and company specific reasons given its operating losses that year.
The overall performance was largely negative following three months after the election, with Naim, HSL and CMS underperforming the flattish FBM KLCI by three to six per cent as investors probably locked in their gains.
KKB continued to outperform by 8.5 per cent, while Zecon was a market performer within the three months post election.
“Our share price analysis suggests that the Sarawak election is a bankable theme if one gets the timing right,” they summarised.
“Should the polls be held sometime mid-year as we opine, this means there are four to five months more to go,” they highlighted. “We advise investors to position themselves for this event given the favorable odds of Sarawak construction counters outperforming.
“As our analysis shows largely a negative performance post election, investors should consider taking profit earlier. An ideal time would probably be on nomination day, which is usually one to two weeks before the actual polls.”
Other Sarawak names that OSK Research did not include in its analysis were Dayang Enterprise Holdings Bhd (Dayang) and Sarawak Cable Bhd (SCB) as these companies were not listed during the 2006 election.
Dayang was primarily involved in the provision of offshore topside maintenance and vessel chartering. It recently
announced a slew of positives which include a RM802 million hook up contract and the sale of its loss making associate, Borcos.
Based on consensus estimates, the stock is trading at 13.6 times on FY11 earnings and 12.4 times FY12.
“SCB, on the other hand, is involved in the manufacture of electrical wires and cables. There is currently no consensus rating on the stock,” it concluded.