-  We reaffirmed our end-2013’s fair value for the FBM KLCI at 1,770, pegged to a PE 16x on 2013’s earnings. At this juncture, we are keeping our corporate earnings growth estimate unchanged at 10% for 2013. From the equity market’s standpoint, the outcome of the 13th General Election was within our and consensus expectations: the Barisan Nasional coalition (BN) was returned to power with a slight decline in majority to 60% (2008 GE: 63%). This erosion in majority for the BN is a mild negative but nonetheless had been priced-in unlike in the 12th general election in 2008. We believe this outcome is the best compromised case for the equity market. The governing mandate is still with the incumbent BN government, which should ensure political and policy continuity as well as a status quo on the public delivery system but with increased representation from the opposition Pakatan Rakyat for check and balance.

-  The removal of election risks should now underpin the return of risk appetite with a shift in emphasis to cyclicals. The focus would gravitate towards the continuity of growth policies embedded in the Economic Transformation Programme (ETP). We expect the initial wave of market re-rating to be liquidity-driven from the redeployment of institutional monies on the sidelines to increase equity exposure. This would take place before a meaningful upturn in the earnings revision cycle from renewed optimism about the investment cycles with the implementation of previously-delayed cornerstone projects.

-  In this report, we highlight the key beneficiaries from the continuity of the BN government. Given our expectations of a liquidity-driven rally, we are BUYers of big-cap market proxies namely CIMB, Tenaga, Axiata and Sime Darby. CIMB has been a laggard relative to other banking stocks because of its perceived linkage to the establishment. CIMB should therefore get a kick from a reversal in sentiment and regain its status as a high beta stock. At a PB of just 1.3x, Tenaga offers a cheaper exposure to the rising market with stronger operating dynamics compared to the telco stocks. We believe that Sime Darby’s share price would soon be pricing an imminent recovery in the CPO pricing cycle. CPO inventory has peaked and is already on the decline.

-  Construction stocks were going through a lull due to uncertainty over the general election, with the associated repercussions on new contract flows. The balance of risk is on the upside. We believe that the perceived risk premia on construction stocks should dissipate on expectations of a resumption of delayed projects including the West Coast Highway as well as several new projects including the high-speed rail link to Singapore. Sentiment reversal from expectation of better job prospects would lead to normalisation in the depressed earnings multiples of the construction stocks. Our BUYs are IJM, WCT and Gamuda. These previously ‘un-loved’ stocks are trading close to trough levels. We also expect Benalec to formalise its SPA for the sale of some 1,000 acres of land to a large foreign oil & gas off-taker for the construction of a massive tank farm in Tanjung Piai, Johor.

-  The development of the Iskandar Region would resume. It is likely that the the BN government would pursue closer ties with Singapore to develop the area. UEM Land is our preferred pick. An added kicker to UEM Land may come from the imminent listing of Iskandar Waterfront. We also like Mah Sing and IJM Land. We believe that the removal of election overhang and continuity of government would aid buying sentiment. Presales momentum also would reaccelerate, we believe. Discount (40-50%) to NAVs is at trough levels for both stocks. More importantly, Mah Sing is fast emerging as the entrepreneur-driven proxy to the robust property market.

-  BN’s strong performance in the state of Sarawak where it won 25 out of the 31 state seats may see BN rolling out sizeable infrastructure projects to solidify its grip in the state. The projects include the 500kV transmission lines, construction of new hydro dams and fast-tracking the development of the Samalaju Industrial Park. There projects were previously put on hold. Sarawak Cable, HSL, KKB and Press Metals would benefit from greater infrastructure spending in Sarawak.

-  The consolidation of the water assets in the state of Selangor as well as the status of Langat II water treatment plant look likely to be again delayed with the Pakatan Rakyat retaining the state. This may be a setback for Puncak Niaga. It also remains to be seen if there would be a consensus between the BN-led Federal government and the Oppositioncontrolled Selangor in the long-awaited development of some 3,300 acres of land in Sungai Buloh by EPF-owned Kwasta Land. This is because all land matters fall under the purview of the state government.

Source: AmeSecurities