We maintain OVERWEIGHT on the construction sector on strong earnings visibility backed by on-going and shovel-ready mega infrastructure, property and oil & gas projects in Malaysia.  We advocate a two-pronged stock-picking strategy, i.e. going for: (1) High-Beta highly liquid big-cap Gamuda; and (2) Undervalued and under-researched mid-and small-cap stocks such as Eversendai, Naim and Ahmad Zaki.

- Strong fundamentals.  The fundamentals of the construction sector are strong backed by on-going mega projects such as the MYR23bn Line 1 or Sg Buloh – Kajang (SBK) Line of the Klang Valley MRT project, MYR60bn Refinery and Petrochemical Integrated Development (RAPID) in Pegerang, Johor, MYR383bn Iskandar Malaysia and MYR334bn Sarawak Corridor of Renewable Energy (SCORE).  In addition, there is a long list of shovel-ready mega infrastructure projects including the MYR25bn Line 2 or Sg Buloh - Serdang – Putrajaya (SBSP) Line of the Klang Valley MRT project, MYR8bn Gemas – Johor Bahru double tracking project, MYR7bn West Coast Expressway and MYR10bn Pan Borneo Highway.

- Price catalysts.  Among the potential price catalysts for the sector over the immediate term are the Cabinet approval for Line 2 of the Klang Valley MRT project, a new wave of contract awards (potentially from the MYR1.5bn Langat 2 water treatment plant, Gemas – Johor Bahru double tracking project, Pan Borneo Highway and various mega property projects), increased talks and media coverage on the Kuala Lumpur – Singapore high-speed rail project, as well as revived talks on nationalisation of toll road and water concessions.

- Two-pronged stock-picking strategy.  We advocate going for: (1) High-Beta highly liquid big-cap Gamuda (BUY, FV:MYR5.45) that will take the lead in terms of reaction to new price catalysts; and (2) Undervalued and under-researched mid- and small-cap stocks such as Eversendai (BUY, FV:MYR2.09) (a proxy to oil wealth and a hidden oil & gas play), and Naim (BUY, FV:MYR6.11) and  Ahmad Zaki (BUY, FV:MYR1.47)  (that trade at a huge discount to their break-up values).

Source: RHB