In the 2Q2010 period, RM5.4bn worth of construction jobs was awarded, with domestic contracts totaling RM3.4bn (+80% q-o-q, +26% y-o-y) and foreign ones at RM2bn (+103% qo-q, +47% y-o-y). The increase in domestic jobs was driven by more awards, PFI jobs and higher private sector projects. Sarawak-based jobs also surged strongly by 74%. We believe the positive news flow is likely to be tempered by implementation delays, tight Govt coffers and a lower physical portion under the 10MP. Maintain NEUTRAL.
The KLCON is trading at 15x forward earnings, which is equal to its long term mean. We do not see a significant rerating occurring anytime soon. We believe that the bulls of more positive news flow will overwhelmed by the bears in the form of implementation delays, tightening Govt coffers and lower physical portion of development expenditure under the 10MP. Nonetheless, we continue to see value in some mid cap names such as Mudajaya (BUY,TP: RM7.33) and Sunway (BUY, TP: RM2.22). For small cap plays, we like Ahmad Zaki (BUY,TP: RM1.33).
Below are the target price for construction sector.
| Stock | Price (RM) | Target (RM) |
|---|---|---|
| AZRB | 0.78 | 1.33 |
| Gamuda | 3.18 | 3.00 |
| HSL | 1.37 | 1.63 |
| IJM | 4.90 | 5.21 |
| Mudajaya | 5.04 | 7.33 |
| MRCB | 1.52 | 1.80 |
| NAIM | 2.95 | 3.52 |
| Sunway | 1.50 | 2.22 |
| WCT | 2.73 | 2.75 |
Source : OSK Research