Kenanga Research maintains overweight on construction sector

KUALA LUMPUR (July 2): Kenanga IB Research maintained its overweight call over the construction sector, as it is still firmly backed by contractors’ healthy orderbooks that provide two to three years visibility, while its replenishment prospects and earnings were met by most contractors.

In a sector report, Kenanga said the Kuala Lumpur Construction Index (KLCT) continued to outperform the FBMKLCI with a rise of 2.9% year-to-date, as compared to the latter’s decline by 2.5% for the corresponding period.

Kenanga expects the momentum to continue with most of its companies meeting its estimates, driven by health orderbooks and improved margins, whilst remaining on track to meet its replenishment assumptions.

“However, we remain cautious on big cap companies’ earnings such as Gamuda Bhd, IJM and WCT Holdings Bhd, due to their significant exposure in property sector.

“Earnings-growth-wise, we estimate aggregate earnings for construction stocks under our coverage to grow by healthy 24.3% and 9.7% in the financial year 2015 and 2016, respectively,” it said.

Kenanga found that the results for eight out of 11 stocks under its coverage for the first quarter of 2015 (1Q15) were within its expectations, but Benalec Holdings Bhd and IJM Corp fell below, due to the delayed land sales and weak property profits respectively.

Over the next three to six months, Kenanga said buildings jobs such as high-rise or affordable housing jobs would benefit building contractors such as Mitrajaya Holdings Bhd, Kimlun Corp Bhd, Sunway Construction Group Bhd and WCT.

The others include infrastructure jobs, including roads, highways, water, marine-related works and civil foundation works that would interest Hock Seng Lee Bhd, Muhibbah Engineering (M) Bhd and WCT.

“The specialised structural steel project for KL118 Tower benefits Eversendai Corp Bhd, while key beneficiaries for piling jobs for some high-rise properties are piling players such as Econpile Holdings Bhd and Pintaras Jaya Bhd,” it said.

At 11.35am, the FBMKLCI rose 6.32 points or 0.37% to settle at 1,734.28 points.