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The Mega Projects
 

The Mega Projects

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More excitement ahead. The eventual award of the RM1.3b Pahang- ...

More excitement ahead. The eventual award of the RM1.3b Pahang-
Selangor raw water transfer tunnel works on 28 Apr confirms that the
new administration sees the urgency for construction in stimulating the
economy. Langat 2 should be next in the limelight, together with the
massive Klang Valley LRT system. We expect more positive news flow
over the near-term. Continue to Overweight Construction.
Langat 2 next. Langat 2, the downstream portion of the water transfer
project, comprises a 2,180 mld treatment plant and the distribution
pipelines. The estimated RM5b construction contract was awarded in
Feb ’08 to Kumpulan Darul Ehsan, which holds 60% of Kumpulan
Perangsang Selangor (KPS). As KPS does not have a major
construction arm, we think that potential beneficiaries are Gamuda, Loh
& Loh and Taliworks, which have had working experience with, and/or
are affiliated to KPS via shareholdings.
Klang Valley LRT to follow. Local companies have been invited to
submit “expressions of interest” for the LRT extension and upgrading
works, with the government keen to see construction works start within
the next 3-4 months, according to today’s Edge. The extension works
could cost RM7b, including RM1b to buy rolling stocks. Our view is that
the project may be parcelled out and experienced contractors like IJM,
Gamuda, UEM Builders and YTL Corp may bid as turnkey contractors.
Overweight Construction. We continue to expect mid-sized projects
to lead the momentum of construction sector recovery under the fiscal
stimulus. Meanwhile, the inter-state water transfer (including Langat 2)
and Klang Valley LRT extension are also two priority projects under the
9th Malaysia Plan with works expected to start before the decade turns.
IJM, WCT and HSL remain on our Buy list. Meanwhile, Gamuda is a
strong contender for the two mega water and LRT projects. Our Hold
call on the stock is under review, with upward revision potential.

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    The Mega Projects The Mega Projects Document Transcript

    • Equity Research PP11072/03/2010 (023549) Sector Update 5 May 2009 Maintain Overweight: The mega Construction projects are rolling in … Overweight (unchanged) More excitement ahead. The eventual award of the RM1.3b Pahang- Selangor raw water transfer tunnel works on 28 Apr confirms that the new administration sees the urgency for construction in stimulating the economy. Langat 2 should be next in the limelight, together with the massive Klang Valley LRT system. We expect more positive news flow over the near-term. Continue to Overweight Construction. Wong Chew Hann, CA wchewh@maybank-ib.com Langat 2 next. Langat 2, the downstream portion of the water transfer (603) 2297 8686 project, comprises a 2,180 mld treatment plant and the distribution pipelines. The estimated RM5b construction contract was awarded in Feb ’08 to Kumpulan Darul Ehsan, which holds 60% of Kumpulan Perangsang Selangor (KPS). As KPS does not have a major construction arm, we think that potential beneficiaries are Gamuda, Loh & Loh and Taliworks, which have had working experience with, and/or are affiliated to KPS via shareholdings. Klang Valley LRT to follow. Local companies have been invited to submit “expressions of interest” for the LRT extension and upgrading works, with the government keen to see construction works start within the next 3-4 months, according to today’s Edge. The extension works could cost RM7b, including RM1b to buy rolling stocks. Our view is that the project may be parcelled out and experienced contractors like IJM, Gamuda, UEM Builders and YTL Corp may bid as turnkey contractors. Overweight Construction. We continue to expect mid-sized projects to lead the momentum of construction sector recovery under the fiscal stimulus. Meanwhile, the inter-state water transfer (including Langat 2) and Klang Valley LRT extension are also two priority projects under the th 9 Malaysia Plan with works expected to start before the decade turns. IJM, WCT and HSL remain on our Buy list. Meanwhile, Gamuda is a strong contender for the two mega water and LRT projects. Our Hold call on the stock is under review, with upward revision potential. Sector comparison table Stock Rec Shr px Mkt cap TP Basis PER PER Gross yldGross yld P/B P/B O/s Order CY09 CY10 FY09 FY10 FY09 FY10 Book (RM) (RMm) (RM) (x) (x) (%) (%) (x) (x) (RMm) Gamuda Hold 2.48 4,976 2.50 RNAV 22.9 17.6 3.2 3.2 1.6 1.5 8,500 IJM Corp Buy 5.30 4,992 5.50 RNAV 14.7 12.3 4.7 3.8 1.0 0.9 4,800 WCT Eng Buy 1.59 1,227 1.70 10x PER 9.6 9.8 4.4 4.4 1.0 0.9 2,200 Sunway # Hold 0.86 469 0.90 0.8x P/B 5.5 4.9 5.3 3.5 0.6 0.5 2,780 HSL * Buy 0.72 420 0.97 8x PER 7.9 6.0 5.3 5.6 1.4 1.2 1,270 Loh & Loh # Hold 4.10 279 4.32 1.4x P/B 12.9 11.7 2.0 2.0 1.4 1.2 630 * HSL’s TP upgraded from RM0.60 after the shift in valuation basis to 8x 2010 PER from 1.2x P/B. # TPs of Sunway and Loh & Loh are under review as we look to restore our earnings-based valuation from asset-based. Source: Company, Maybank-IB
    • Construction Definition of Ratings Maybank Investment Bank Research uses the following rating system: STRONG BUY Total return is expected to exceed 20% in the next 12 months; high conviction call BUY Total return is expected to be above 10% in the next 12 months HOLD Total return is expected to be between above 0% to 10% in the next 12 months FULLY VALUED Total return is expected to be between -10% and 0% in the next 12 months SELL Total return is expected to be below -10% in the next 12 months TRADING BUY Total return is expected to be between 10-20% in the next 6 months arising from positive newsflow e.g. mergers and acquisition, corporate restructuring, and potential of obtaining new projects. However, the upside may or may not be sustainable Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax Disclaimer This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Bhd, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward- looking statements. Maybank Investment Bank Bhd expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. This report is prepared for the use of Maybank Investment Bank Bhd's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Bhd and Maybank Investment Bank Bhd accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Published / Printed by Maybank Investment Bank Berhad (15938-H) (Formerly known as Aseambankers Malaysia Berhad) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, MaybanLife Tower, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com 5 May 2009 Page 2 of 2