Construction stocks flat after ECRL launch, but Ann Joo runs up

KUALA LUMPUR (Aug 10): The ground-breaking ceremony of the East Coast Rail Line (ECRL) yesterday failed to lift construction stocks this morning, despite the sector being touted as the biggest beneficiary of the ECRL in the near- to medium-term.

Although China Communications Construction Company (CCCC) is the main contractor for the ECRL project, the minimum 30% of contract value or RM16 billion to be awarded to Malaysian contractors, is still sizable, CIMB Research said in a report today.

However, its top pick for the sector, Gamuda Bhd, was flat at RM5.42 per share, at which it has been trading since Aug 8.

Gamuda has run up some 12.71% since the beginning of the year to hit a one-year high of RM5.50 on June 30. It still continues to command 18 buy calls on the stock from a total 24 analysts, with a consensus target price of RM5.86, according to Bloomberg data.

CIMB reiterated Gamuda could emerge as the biggest local player for ECRL, with its RM10 billion target for contract wins remaining unchanged.

“We maintain our Overweight sector rating. Downside risks include project delays and funding," CIMB said.

Other potential beneficiaries from the ECRL include IJM Corp Bhd, Malaysian Resources Corp Bhd (MRCB), WCT Holdings Bhd, and Muhibbah Engineering Bhd. However, all these counters had seen little to no trade this morning.

IJM is likely to target selected packages that serve its operations in Kuantan Port, as well as the viaduct scope similar to its job for the mass rapid transit (MRT) projects, CIMB said. Meanwhile, Sunway, via Sunway Construction, has the advantage of experience from its MRT contracts in securing the viaduct projects.

Both IJM and Sunway are also recommended as “Add” by CIMB.

Meanwhile, CIMB’s non-rated players who stood to gain from ECRL included steelmaker Ann Joo Resources Bhd, which had gained 4 sen or 1.25% to RM3.25 per share in early trade today.

Other players included piling group Econpile Bhd, HSS Engineers Bhd for design works, and Gadang Holdings Bhd for depot.

Yesterday, Najib targeted 2024 as the completion date for the project, of which 85% will be financed via a soft loan from the Exim Bank of China, with a 3.25% interest and seven-year moratorium. The balance will be financed via a sukuk programme by local banks, with a 20-repayment tenure.

The ECRL is also expected to boost the gross domestic product (GDP) of the East Coast states by 1.5%, Najib said. — theedgemarkets.com

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