Bullish forecast for construction and O&G

KUALA LUMPUR: Analysts are upbeat on the oil and gas (O&G) and construction sectors, as they are sitting on huge tender books going into 2014 due to contracts to be dished out by the government and Petroliam Nasional Bhd (Petronas).

The two sectors are included under the government’s Economic Transformation Programme (ETP), aimed at elevating the country’s economic status to that of a developed nation by 2020. The country is targeting by then to have a gross national income (GNI) per capita of US$15,000 (RM48,150).

This will be achieved by attracting US$444 billion in investments, which will in turn create 3.3 million new jobs.

“The government has allocated about RM120 billion for the expansion of railway projects such as MRT Line 2 and 3,” according to M&A Securities’ head of research, Rosnani Rasul, when asked on sectors that investors should look out for in 2014.

Kenanga Investment Bank has an ‘overweight’ call on the construction and O&G sectors, as well as gaming, property, glove and utilities.

According to Kenanga, its ‘overweight’ call on the construction sector is due to the anticipation of increasing news flow, such as the Cabinet approval for the RM25 billion Klang Valley Mass Rapid Transit Line 2;  the West Coast Expressway’s RM6 billion highway; completion of the feasibility study on the Kuala Lumpur-Singapore High-Speed Rail; and the Langat 2 treatment plant.

“We like SapuraKencana for its status as Malaysia’s sole integrated O&G services provider. It’s also currently trading at an unjustified discount to its large-cap peers, such as MMHE (Malaysia Marine & Heavy Engineering) and Bumi Armada, which makes it an attractive investment proposition,” said Kenanga in a report.

Kenanga and M&A have Gamuda Bhd as their top pick for the construction sector, with SapuraKencana Petroleum Bhd picked for the O&G sector.

Eastspring Investments chief investment officer Yvonne Tan said the Malaysian market may have scaled back on certain projects, mainly in the construction sector.

“We are looking at some robust construction companies, but we are optimistic on the O&G segment. This is because of the Rapid (in Pengerang, Johor) contracts that are coming in through Petronas,” Tan added.

However, Tan is cautious on several sectors, such as construction, telecommunications, consumer and properties.

“We are selective on the telecommunication stocks, but we are optimistic on some, which have adopted the business trust structure. On the consumer stocks, we are cautious mainly due to the goods and services tax and subsidy cuts.

“We are selective on the construction and property sectors due to possibilities of stricter measures that will be unfavourable for the sectors,” she said.

The government has proposed a higher real property gains tax of 30% from the current 15% for properties sold within four years.

Although there are still short-term uncertainties such as the Umno elections and Budget 2014, Tan affirms that the global economy is still intact.

“We can already see global economy recovery. With the eurozone out of recession and China’s purchasing managers’ index numbers also in recovery, it is certain that we will see a better economy next year,” she told The Edge Financial Daily.

The World Bank and Asian Development Bank have downgraded its GDP forecast for the East Asia Pacific region to between 4.3% and 4.9%, from 5.1% and 5.4% in April.

The World Bank said the near-term outlook suggests a pick-up in growth in the second half of the year as the external demand bottoms out along with increased confidence in the recovery of advanced economies.

The impact of further fiscal consolidation and possibly tighter credit conditions on domestic demand will weigh on growth outlook in 2014 and 2015. But improved external environment will partly mitigate these headwinds.

This article first appeared in The Edge Financial Daily, on October 10, 2013.



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