News 

According  to  Starbiz,  Works  Minister  Datuk  Fadillah  Yusuf said that  work on seven new  highways  will start  next  year, offering jobs worth ~RM20bn for the construction sector. The highway projects mentioned are:

Project - Value (RM bn)

• Duta-Ulu Kelang Expressway (DUKE) extension - 1.18
• West Coast Expressway (WCE)  - 5.04
• Kinrara-Damansara Expressway (Kidex) - 2.50
• KL Outer Ring Road (KLORR)  - 1.50
• Damansara-Shah Alam Expressway (DASH) - 4.18
• Sg. Besi-Ulu Kelang Elevated Expressway (SUKE) - 4.30
• Serdang-Kinrara-Putrajaya Highway (SKIP) n.a.
• Total  18.70

The Work Minister said that most of the projects are in the process of seeking approvals from the state authorities and relevant bodies. He also said that DASH and Kidex projects are  in  the  process  of  seeking  public  consultation  and  final approval from the state.

Comments 

Timely  order  book  replenishment…  We  believe commencement of the abovementioned highway projects is timely  to  replenish  the  order  books  of  bigger  construction companies that have been shrinking in the absence of new jobs in the country.

Not  new  &  largely  priced  in…  Out of the seven highway projects, six have been previously speculated in the market. Only  the  SKIP  highway  has  sketchy  information.  As  such, we  believe  that  market  has  mostly  priced  in  the  above projects  as  part  of  contract  wins  assumption  for  major construction players.

Key  beneficiaries…  We  believe  key  beneficiaries  for  the estimated RM20bn highway projects will be IJM (HOLD; TP: RM7.09),  WCT  (HOLD;  RM2.26),  TRC  (HOLD;  TP: RM0.57),  Mudajaya  (HOLD;  TP:  RM2.48),  AZRB  (not rated) and Bina Puri (not rated).

Risks 

Execution risk;  unexpected downturn in the construction and property sector;  rising raw material prices;  and  political and regulatory risks.

Rating/ Valuation

Maintain NEUTRAL on the construction sector in view of the imminent  delays  of  Governm ent-related  projects,  slowdown in the property sector, coupled with greater scrutiny from the opposition party on mega projects. Top Picks  Top picks in order of preference are:

• MRCB (BUY; TP: RM1.97); and
• HSL (BUY; TP: RM2.18)

Source: Hong Leong Investment Bank Research - 19 Sep 2014