KUALA LUMPUR: Maybank Investment Bank Research has reiterated its “overweight” call on the construction sector with Gamuda Bhd
being its top pick.
“As for stock picks, investors’ interest was mainly on the players with large market capitalisation especially Gamuda. Investors favour Gamuda for its strong capabilities and long term orderbook visibility.
“Nevertheless, there was concern on the Penang Transport Master Plan. Based on its track record, we believe Gamuda would be able to secure approvals from the federal government,” Maybank Research said.
It added that Gamuda’s strong balance sheet and potential proceeds from SPLASH disposal would support advance financing for the project.
Maybank Research said it gathered during its recent roadshow that foreign interest in construction sector was stronger but there were concerns on the implementation timeline.
During the meetings, it gathered increased interest in Malaysian equities post the weakening of ringgit.
“As for the Malaysia construction sector, investors were long term upbeat on the strong pipeline of jobs and upcoming contract awards and believe that the sector is one of the bright spots in Malaysia.
“However, there were near term concerns on whether financing availability and political noises will affect the timely implementation of projects,” Maybank Research said.
Despite recent political noises, the research house said awards of major projects including government-related jobs have accelerated especially with the record number of Project Delivery Partners (PDP) being confirmed.
It said most of the PDPs would have to call for tenders soon (in 2016) to ensure timely completion of their projects to avoid late penalties.
The government has recently reiterated its commitment to roll out infrastructure projects under the 11th Malaysia Plan especially those that are pertinent to support long-term economic activities. Financing will be phased out and will not be directly from the government’s coffers.
Maybank opined that bonds will stay the key financing tool, and stable domestic liquidity would support new bond issuances.
“While government guaranteed bonds may no longer be forthcoming, revenue/cash flow support is an alternative,” it said.
Maybank said it understood that going forward, public transportation projects such as the KVMRT 2 (RM28bil) and KVLRT 3 (RM9bil), and non-toll highways like the Pan Borneo Sarawak Highway (RM15bil) would remain funded via bonds but with non-government guaranteed bonds being preferred.
This is to alleviate the pressure on the government’s balance sheet with government debt and government guaranteed debt already making up a sizeable 68.9% of GDP as at end-2Q 2015.
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