Construction
Maintain overweight: Results letdowns by certain contractors during the 3Q11 reporting period should not raise red flags as better quarters are in the offing. More importantly, the outlook for project awards starting 1H12 is good, driven by the rollout of large scale jobs.
We expect a continued improvement in construction margins, underpinned by progress billings and new contracts. Project flows are likely to pick up in 1H12 and trigger a re-rating of the sector. Maintain “overweight”. IJM Corp Bhd and WCT Bhd remain our top picks.
For 3Q11, five contractors, or 71% of the contractors we cover, delivered while two fell short. They turned in construction pretax margins of 3% to 22% in 3Q11, with exception of Malaysian Resources Corp Bhd which reported operating losses due to the timing of progress billings and profit recognition. Other contractors’ margins held steady, with upside coming from new jobs secured in the past three to six months.
The highest margin consistently came from Mudajaya Group Bhd though its results were below expectations. The lowest were IJM Corp and Sunway Bhd at 3%. IJM’s margins were dragged down by its Indian projects but should slowly recover to 6% to 8% due to new jobs. Gamuda Bhd’s margins stood at 7% mainly due to the double tracking project.
WCT’s margins were underpinned by its Middle East projects.
We expect project flows to be more active in 1H12 compared with 2H11 as most tenders will be due for award over the next few months. Year-to-date total major project awards amount to RM8 billion.
We note a shift towards projects of above RM500 million in value, a trend that is set to gain momentum as larger projects make tracks. This should be positive for the entire sector.
The value of projects to be awarded in 2012 should be at least double the value in 2011 as infrastructure works for the MRT SBK line alone will be worth about RM18 billion.
Other large-scale projects to be awarded in 2012 are the RM6 billion West Coast Expressway (WCE), about RM1 billion extension of the New Pantai Expressway (NPE) and the RM7 billion railway double tracking project from Gemas to Johor Baru.
There is likely to be excitement in 1H12 in the form of the pending awards for the MRT SBK line. Of the 28 contractors in the running for the elevated, stations and depot works, 14 are listed companies. — CIMB IB Research, Dec 14
Maintain overweight: Results letdowns by certain contractors during the 3Q11 reporting period should not raise red flags as better quarters are in the offing. More importantly, the outlook for project awards starting 1H12 is good, driven by the rollout of large scale jobs.
We expect a continued improvement in construction margins, underpinned by progress billings and new contracts. Project flows are likely to pick up in 1H12 and trigger a re-rating of the sector. Maintain “overweight”. IJM Corp Bhd and WCT Bhd remain our top picks.
For 3Q11, five contractors, or 71% of the contractors we cover, delivered while two fell short. They turned in construction pretax margins of 3% to 22% in 3Q11, with exception of Malaysian Resources Corp Bhd which reported operating losses due to the timing of progress billings and profit recognition. Other contractors’ margins held steady, with upside coming from new jobs secured in the past three to six months.
The highest margin consistently came from Mudajaya Group Bhd though its results were below expectations. The lowest were IJM Corp and Sunway Bhd at 3%. IJM’s margins were dragged down by its Indian projects but should slowly recover to 6% to 8% due to new jobs. Gamuda Bhd’s margins stood at 7% mainly due to the double tracking project.
WCT’s margins were underpinned by its Middle East projects.
We expect project flows to be more active in 1H12 compared with 2H11 as most tenders will be due for award over the next few months. Year-to-date total major project awards amount to RM8 billion.
We note a shift towards projects of above RM500 million in value, a trend that is set to gain momentum as larger projects make tracks. This should be positive for the entire sector.
The value of projects to be awarded in 2012 should be at least double the value in 2011 as infrastructure works for the MRT SBK line alone will be worth about RM18 billion.
Other large-scale projects to be awarded in 2012 are the RM6 billion West Coast Expressway (WCE), about RM1 billion extension of the New Pantai Expressway (NPE) and the RM7 billion railway double tracking project from Gemas to Johor Baru.
There is likely to be excitement in 1H12 in the form of the pending awards for the MRT SBK line. Of the 28 contractors in the running for the elevated, stations and depot works, 14 are listed companies. — CIMB IB Research, Dec 14
