“We are positive on all subsegments other than the cement industry in Peninsular Malaysia,” it said.
The prospects of the sector are bright, underpinned by the stronger demand for building materials based on record order books of the construction players in the country.
It pointed the various mega projects include the East Coast Rail Link (ECRL) (RM55bil), MRT2 (RM32bil), Pan Borneo Highway (RM16b), and mega-scale township development such as TRX, KL118 and others.
Other potential projects in the pipeline include the Pan Borneo Sabah highway (RM12.8bil), LRT3 (RM9bil), Gemas–Johor Bahru electrified double-tracking rail (RM7.5bil), and Kuala Lumpur–Singapore high-speed rail (KL-Singapore HSR) (RM5060bil).
“These mega projects will further boost the demand for building materials such as steel, cement and aluminium.
“Our Overweight stance on the building materials sector could be further strengthened by higher-than-expected average selling prices (ASP) for selected building materials like steel and aluminium,” it pointed out.
However, AmInvestment Research said it might downgrade its Overweight stance on the building material sector to Neutral.
It said one factor which could prompt the downgrade were if demand volume for building materials is hampered by federal government plans to postpone, scale down or even cancel infrastructure projects due to unforeseen circumstances such as economy slowdown.
Another factor was that ASP for building materials dropped significantly due to policies set by the regulator or startling external headwinds.
AmInvestment Research’s top large-cap and small-cap picks are Cahya Mata Sarawak and Ann Joo Resources respectively.
Cahya Mata Sarawak (Buy, fair value RM5.15). The sole cement manufacturer and one of the dominant local players supplying building materials (aggregates, premix and wire mesh) through its construction and materials trading arm.
Ann Joo Resources (Buy, fair value: RM3.86). Dubbed the dominant local steel players which controls 20% of the market share and able to produce high tonnage of steel.
Ann Joo Resources is able to maintain better margin in comparison to its peers in the industry due to cost optimisation in production, adopting the hybrid BF-EAF technology.