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Monday, January 5, 2009

HwangDBS positive on construction sector

HWANGDBS Vickers Research Sdn Bhd said it sees the outlook for the local construction sector in 2009 as positive, boosted by the government's expenditure on infrastructure projects.

The high-profile jobs include extension of the Klang Valley light rail transit system and the inter-state water transfer.

"We expect 2009 to be the year for the government to play catch-up (after 2008's more muted allocation of construction projects) as pump priming efforts appear vital to ensure its internal Gross Domestic Product (GDP) growth target of 3.5 per cent is met and the economy does not slip into recession," it wrote in its market focus report recently.

"The (government's) development expenditure of RM53.7 billion for 2009 is a hefty 16 per cent increase from 2008 estimates of RM46.3 billion. An additional RM7 billion was announced as part of a stimulus package in November," it said.
The foreign research firm also sees improved outlook for the construction sector's margins, as building material prices have corrected sharply.

The price of steel bars at RM1,900 per tonne has dropped from a peak of above RM4,000 per tonne.

"When material prices were at the peak, the government planned to delay some projects given the higher cost. The lower cost now will allow more projects to be implemented," it said.

HwangDBS Vickers said it expects bigger construction players with good execution track records such as IJM Corp Bhd and WCT Bhd to emerge as winners given the increased focus on timely delivery.

"Apart from potential government jobs, we believe IJM will be eyeing projects in India, the Middle East and private sector jobs in Malaysia. For WCT, we expect the group to leverage on their Middle East presence for order book replenishment," it said.

Meanwhile, its 12-month target for the Kuala Lumpur Composite Index is 950 points, based on 12 times 2010 earnings.

"In the near term, concerns about growth may continue to weigh on the market. In this environment, we like stocks with relatively resilient dividend flows.

"Utility-type/concession earnings at YTL Power Bhd, PLUS Expressway Bhd and Lingkaran Trans Kota Holdings Bhd should sustain high-dividend payouts," it added.

For 2008 and 2009, DBS expects the country's GDP to grow by 5.5 per cent and 3.3 per cent respectively. This estimate factors in another 50 basis points cut in the Bank Negara Malaysia's policy rate to 2.75 per cent by end first quarter of 2009.

By Business Times

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