Construction (OVERWEIGHT)

• Construction activities rebounded' During the latest quarter's results, construction activities in general rebounded as indicated in the sequential revenue growth. However, it did not necessarily translate to earnings growth as occurred for the likes of MRCB and TRC Synergy.
• Slight disappointment' Overall, there were more disappointments than upside surprises for construction stocks within our coverage. The disappointments were largely from MRCB and TRC Synergy while the others came relatively in line. On the other hand, Sunway beat our expectations slightly due to improved overall performances.
• Crucial year for replenishment' After a quiet year in terms of contract flows last year, most construction companies are running down on their existing order book and this year will be important for them to replenish it in order to maintain decent growth rates for FY2013. That said, with the expediting of ETP projects and improved newsflow for the sector, we believe that the sector will have ample opportunities for more contract wins.
• We maintain our OVERWEIGHT stance on the sector with a P/E of 14x for the larger cap construction counters and 12x for the mid/smaller cap companies. The historical KLCON Index P/E is ~15x.
• Our top picks in order of preference:
  • Sunway (TP: RM3.20);
  • Gamuda (TP: RM4.41)
  • Mudajaya (TP: RM4.61)
  • MRCB (TP: RM2.50)