Saturday, September 18

Expect post-election relief rally for construction stocks

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KUCHING: Analysts anticipate a relief rally for construction stocks once the 14th General Election (GE14) concludes.

The team at MIDF Amanah Investment Bank Bhd (MIDF Research) said from the expected date of Barisan Nasional (BN) GE-14 Manifesto’s launching on April 7, 2018 it interpolate that the dissolution of parliament would be potentially be within 10 days.

“The announcement on the dissolution is expected to add heat of interest to construction companies as it provides clarity to the implementation of large infrastructure projects,” it said in a sector outlook yesterday.

“Based on our observation of the previous election held in 2013, share prices of construction companies such as IJM Corporation Bhd, Gamuda Bhd, Cahya Mata Sarawak Bhd and Malaysian Resources Corporation Bhd responded with advancements from the date of voting/election results.”

Meanwhiel, MIDF Research saw that lately, loans to the construction sector wass tapered by a dissuading shot of disbursement rate amounting RM7.2 billion.

It believed that January 2018’s loan disbursement rate of RM8.3 billion — coupled with the current liquidity rate — contributed to March’s attractive valuation of 16.42 times for its price earnings ratio and 1.04 times for its price to book value ratio respectively.

“Although the disbursement rate of construction loans tapered, January’s credit largesse of RM8.3 billion is anticipated to buoy the sector’s growing need of working capital which is a leading indicator of earnings expansion.

“Looking at the rate of disbursement, which matches with the recent news of Pan Borneo Sabah segment and the pickup in LRT3 awards in March – credit liquidity to the sector is sufficient to respond to upcoming projects awards and expectations of implementation.”

These included railway-related projects such as the East Coast Railway Line, Malaysia-Singapore High Speed Railway and MRT3; deep sea port projects such as the Klang Port extension at Carey Island, Kuala Linggi International Port and Melaka Gateway Port; and highway progress specifically for Pan Borneo Sabah’s segment and Pan Borneo Sarawak.

“Despite the lack of clarity in the sector’s direction we believe that this is the opportune moment of increasing exposure.

“Year-to-date, construction stocks under our coverage has registered anaemic returns, its share prices are clobbered to reflect growing uncertainty for big-ticket projects which fodders the sector’s orderbook. Despite the risk perception, earnings yield for our coverage illustrates opportunity for accumulation.

“With these developments, we maintain our positive stance on the construction sector, advocating increase exposure (in specific stocks).”