Construction stocks rally following Budget 2017

Positive outlook: AmBank Research says the prospects of the local construction sector remain bright, backed by various rail projects.

PETALING JAYA: A number of construction counters rallied to new highs yesterday, following the extension of focus on major infrastructure initiatives under Budget 2017.

The other catalyst included the industry’s positive earnings growth in the coming third-quarter earnings season.

Sunway Construction Group Bhd (SunCon), Ekovest Bhd, Gadang Holdings Bhd, Econpile Holdings Bhd and George Kent (M) Bhd hit new highs or hovered near record prices at the end of trading.

The shares of the companies had outperformed the broader market by a wide margin so far this year.

Ekovest, which added eight sen, reached its all-time high or doubled its year-to-date value to RM2.18.

Gadang, which climbed 11 sen, also peaked to a new high of RM3.31 , while SunCon, which closed lower by five sen to RM1.69, was not too far from its all-time high of RM1.74 on Oct 21.

Econpile, which added four sen, also reached a record high of RM1.88.

Another winner was George Kent at RM2.82 with an eight-sen gain. Year-to-date, George Kent shares had chalked up a 123% growth.

The Bursa Malaysia Construction Index, which is the sector benchmark, had gained 5.72% this year, outperforming the FBM KLCI’s 1% decline to date.

A slew of new infrastructure projects were announced during Budget 2017 last Friday.

They included the RM55bil East Coast Rail Line, the construction of rural bridges and roads totaling RM1.2bil, new schools for RM478mil, the reconstruction of destitute schools for RM570mil, and the improvement of the water supply network for RM732mil.

Additionally, the Government has reiterated its commitment to major projects that are underway, including the Pan Borneo Highway and the five economic corridors comprising Iskandar Malaysia, the East Coast Economic Region, the Sabah Development Corridor and the Sarawak Corridor of Renewable Energy.

“The budget confirms our view that the prospects of the local construction sector remain bright, backed by various rail projects – the mass rapid transit (MRT) Line 2 and the light rail transit (LRT) 3 – highways (Pan Borneo and the Duta-Ulu Kelang Expressway extension), and mammoth property developments (KL118 and Kwasa Damansara),” said AmBank Research in a report yesterday.

Meanwhile, CIMB Research said the compiled value of construction jobs highlighted in Budget 2017 totalled RM99bil.

This does not include the MRT 2 valued at RM30bil and LRT 3 valued at RM9bil which had been approved.

“Of the RM99bil compiled value of jobs, we estimate that 45% of the total value would directly benefit smaller contractors.

“Separately, the rollout of more infrastructure jobs next year should benefit the building material players too especially cement and steel, as it should mitigate the slowdown facing the property or residential market,” said CIMB Research that had maintained an “overweight” stance on the construction sector.

Gamuda Bhd remained its top big-cap pick for exposure to rail jobs. “We also prefer Muhibbah Engineering (M) Bhd and Salcon Bhd within the small and mid-cap space,” it said.

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