AZRB

OSK maintain OVERWEIGHT rating on construction sector, driven primarily by:

(i) implementation of the various projects under the ETP, and

(ii) the potential of more contract awards as the Govt attempts to generate a feel-good factor given the potential of an early General Election.

Gamuda, Mudajaya and KimLun are OSK’s top picks

Below are the target price for selected stocks in construction sector.

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Maintain OVERWEIGHT. We believe that our RM18bn domestic jobs win target for 2011 could likely be breached should the various projects under the ETP kick off faster than expected. Given the likelihood of an early General Election this year, we expect the momentum of news flow within the sector to accelerate.

Our top sector pick is Gamuda for its MRT exposure, with its Vietnam property launches and resolution of the water assets consolidation as the wild card. For the small caps, we like Ahmad Zaki. In view of the state elections which must be held by May, we continue to like the Sarawak theme and highlight sector laggard Naim Holdings. Investors may also consider looking at Iskandar construction plays, with Kim Lun as key proxy.

Below are the target price for selected stocks in construction sector.

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We are of the view that the LRT extension job could be awarded soon, possibly by year end. We have identified several locations where site clearing is now in progress. Our channel checks indicate that there will only be 2 main packages for civil works collectively worth RM2bn.

As such, we expect the momentum of positive news within the sector to accelerate in the coming months and rerate our valuations upwards. Maintain OVERWEIGHT on construction.

Below are the target price for construction sector.

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stock market

Further Election Indications. With the Star reporting that the PM has called on UMNO party members to get ready for the general election, we believe our long held view of an early 2011 polls will indeed become reality. Given the history of pre-election rallies, we maintain our year-end KLCI target of 1496 pts and 2011 KLCI fair value of 1648 pts even as we caution on the 3Q results to be announced in November. We are particularly positive on the Construction, Property and O&G sectors as part of the election theme. With the Sarawakian state election possibly being held in 2010 and the general election before June 2011, any weakness in the local bourse in November is a cue to Buy.

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stock market

Budget 2011 appears to promote private consumption and investment given its notable PPP initiatives in infrastructure development. While fairly Neutral, there were slightly more positive than negative surprises, especially since the highly anticipated tightening measures on the property sector did not materialize. We see the Construction, Property and Consumer sectors as the biggest winners from this Budget although we do not see a major market reaction as most of the main budget items had been unveiled earlier.

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