• Infrastructure  projects  to  be  the  key  driver  in  2015  with 11MP and Sarawak state election as sentiment boosters.
• Prefer  potential  beneficiaries  of  major  infrastructure projects and Sarawak construction.
• Reiterate Overweight; top BUY is Gamuda (TP: RM 6.00).

What’s New

2015  would  be  another  significant  year for the  construction  sector since we believe that most mega infrastructure  projects would still forge  ahead  despite  fiscal  deficit  concerns.  We  expect  more positive  newflows  from  tendering  activities  and  job  awards  for these projects, but the positives would be back-loaded in 2H15. The  unveiling  of  the  11th  Malaysia  Plan  (11MP)  in  mid-2015  should reiterate  the  government’s  commitment  in  advancing infrastructure  development.  Sarawak  construction  would  also attract  the  limelight  as  SCORE  development  accelerates  and  the Sarawak state election would be held by mid-2016.

Elsewhere,  corporate  exercises  including  the  listing  of  Sunway’s construction  arm  and  WCT’s  malls  are  expected  in  2Q15/4Q15. Nevertheless,  overall  new  construction  contracts  in  2015  could  be slower due to the subdued property market outlook.

What’s Our View

We  stay  Overweight  on  the  sector  and  like  potential  beneficiaries of  infrastructure  projects  that  have  solid  track  records  and  niche expertise,  particularly  players  that  are  poised  to  chalk  record outstanding construction orderbooks  -  Gamuda, IJMC and HSL. The KLCon Index was stable (+0.4%) in 2014, but outperformed the KLCI (-5.7%).  Sector  valuation  is  however  still  undemanding  with Gamuda (TP: RM 6.00),  IJM (TP: RM 7.40)  and  HSL (TP: RM 2.15)  trading  at  close  to  historical  mean  despite earnings growth potential.

Gamuda (TP: RM 6.00) is our Top Pick as the major contender for both the Penang Integrated  Transportation  project  and  KVMRT  2  tunneling  project. CMS  is  our  Top  Pick  for  Sarawak  construction  as  it  rides  on  the robust construction activities in Sarawak.

Source: Maybank Research - 13 Jan 2015