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.
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Construction, Property and Utilities most affected. As can be expected from a development plan, the Construction and Property sectors were the most impacted. While we were pleased to note that there was no cut to the development budget, we also noted the shift to PPP-type projects and remain skeptical that funding can be sourced simultaneously for the LRT extension, Double Track extension and KL MRT projects. We prefer Sarawakian companies for construction play given the continued emphasis in the 10MP.
As for property, while noting that land value could be unlocked with the development of Sungai Buloh, Sungai Besi airport and Kampung Baru, we are concerned that existing commercial property values could be capped if the launch of these new developments is not properly planned.
Finally, on Utilities, the LNG plant and new coal power plants coupled with planned subsidy reductions should help assuage concerns of a looming power crunch although political will is needed in cutting the subsidies.
A selection of beneficiaries. In distilling down the sectoral impact, we believe that among the notable beneficiaries of the 10MP will be:
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I believe everybody is aware about the New Economic Model (NEM) which was announced by our prime minnister a few days ago which aim to bring Malaysia to high income nation in 10 years time.
However, what interest me more is the news on Government and EPF to jointly develop 3000 acres of land in Sungei Buloh into a new hub for the Klang Valley. If is it true then the property price around the area may increase. This is a good news for property investor.
But, where is the exact location?
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