ECM Libra Investment Research has upgraded the construction sector to neutral from underweight, saying it would be the main beneficiary of the second stimulus package, but it has maintained its neutral call on building materials.
A significant portion of the additional RM12 billion allocation was for small-scale projects such as schools, road works and basic infrastructure.
“Some jobs may still flow to the smaller cap listed contractors such as Ahmad Zaki (Resources Bhd) and TRC Synergy, which have significant exposure to government jobs as well as Protasco which specialises in road construction and maintenance. Sunway Holdings may also benefit from the demand for quarry aggregates used in road construction.”
It added that the construction of the new low-cost carrier terminal (LCCT) and the Penang airport expansion would benefit players such as WCT Bhd and TRC Synergy while the light rail transit (LRT) line extension and the tunnelling portion of the Pahang-Selangor water transfer projects would be beneficial for IJM Corp and Gamuda Bhd.
However, it added that there were insufficient catalysts for an overweight call on the sector as it has to balance the positive of the second stimulus package with risk of lower order book replenishment from overseas as well as higher implementation risk now.
ECM Libra has a hold call on Gamuda with a RM2.28 target price (TP) while IJM (TP: RM5.10), Muhibbah Engineering Bhd (TP: RM1.77) and Sunway Holdings are buys (TP: 90 sen).
On the building materials sector, ECM Libra said it has been dragged down by a slowdown in construction. The research outfit maintained a neutral stance on the sector as the boost in the construction sector would trickle down to the building materials
The research house has a hold recommendation on Lafarge (TP: RM3.90) while YTL Cement is a buy (TP: RM4.50).
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