CIMB Research positive on construction, building materials

KUALA LUMPUR: CIMB Equities Research expects construction sector growth and fundamentals for the building materials sector to stay positive in 2010 and beyond.

It said on Thursday, Jan 28 the growth should be sustainable given the implementation of larger government and private sector jobs this year, and increased construction on the property side.

The tabling of the 10th Malaysia Plan (10MP) in June 2010 should provide more visibility on infrastructure and construction spending beyond 2010.

CIMB Research said although the outlook for building materials appears positive, we continue to rate the building materials sector a NEUTRAL, it believed the earlier positive newsflow on stimulus packages and the potential pick-up in construction activities have already been priced in.

The pricing in has been for the biggest player in its coverage, Lafarge Malayan Cement. Ann Joo remains its top pick in the building materials sector.

“However, for exposure to pump-priming, we prefer direct exposure to the contractors,” it said.

CIMB Research said demand for Ann Joo’s products will pick up and possibly even gain momentum in 2H. Its target price remains at RM3.55, still pegged to 12.8 times P/E, a 15% discount to our target market P/E of 15 times.

It is Neutral on Lafarge as the share price has already priced in the positive newsflow on construction activities and stimulus packages. It retains its target price of RM6.96, which it will continue to base on a blend of its target market P/E of 15 times and a P/BV of 1.1 times.

“We maintain our Outperform rating (Tasek Corporation) in view of the potential strong pick-up in construction activities in 2010. With a cash hoard of RM332 million as at September 2009, it is in an excellent position to capitalise on M&A opportunities in the region.

“Our target price remains at RM5, still based on a blend of 12 times P/E and 0.8 times P/BV. These target valuations are a discount to Lafarge’s 15 times target P/E and 1.1 P/BV. Potential re-rating catalysts include stronger demand from pump-priming which could boost sales and selling prices,” it said.