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Thursday, September 15, 2011

Construction - Piling in the numbers (CIMB)

Maintain OVERWEIGHT. Contractors’ earnings performance during the recent reporting period indicated that construction pretax margins will hold steady in the coming quarters. We also expect some upside to margins due to the recognition of new jobs and expectations of lumpy project wins with better margins. Recent
awards of larger-scale jobs, i.e. the LRT extension package 2, should be followed by the tenders and awards for the KV MRT project over the next 2-3 months. On average, the share prices of the contractors under our coverage have fallen 21% YTD as investors are increasingly wary of cyclical and high-beta stocks amid the global economic concerns.

We remain positive on the domestic construction sector as the progress of ETP and Greater KL projects could accelerate towards end-11 and 2012. The sector remains an OVERWEIGHT. IJM Corp and WCT are our top picks.

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