Economics

• Unveiling the 11MP. The 11th Malaysia Plan (11MP) which spans from 2016-2020 will be tabled in Parliament on 21 May. Arguably, this will be the most important MP as it will be the final 5 years for Malaysia to achieve Vision 2020.
• Target in sight. The 11MP has a GDP growth target of 5- 6% p.a. Based on this, income per capita is expected to hit US$17.9k in 2020, surpassing the US$15k benchmark of a High Income Nation status. With this, poverty rate is projected to reduce to almost nil (2014: 1%).
• Higher allocation. Under the 11MP, the Government has indicated an allocation of RM250bn for development expenditure (DE), an 8.7% increase from the 10MP. Key development areas would include public transportation, affordable housing, flood victims rehabilitation, rural infra, education and healthcare.
• Balanced budget achievable. Despite the higher DE, we opine that a balanced budget can still be achieved by 2020. We estimate that around half of the RM250bn DE will be cushioned by various fiscal measures that were recently implemented such as the GST, fuel subsidy removal and new electronic procurement system.

Market View

• Post-MP rally in the past. Our analysis of the past 3 MPs reveal that the KLCI rallied 17-21% from the day it was tabled in Parliament to the year end. There was however, no conclusive evidence of a pre-MP rally.
• Construction. The construction sector is poised to be the ultimate beneficiary of the 11MP as most of the DE will be infra centric. We are positive on the higher DE allocation given its high correlation to nominal construction GDP (73%). In the past 3 MPs, the KLCON outperformed the KLCI by a magnitude of 3-17% during year it was tabled.
• Building Materials. Via construction, there will be a positive spillover to building materials in terms of stronger demand for its products. Unlike construction whose beneficiaries are constrained to “who wins what”, buildi ng mat erials offer a broader proxy to the 11MP construction play. We prefer the cement sub sector over steel.
• Education. Education standards in Malaysia are below its developed peers. We envisage that allocation for educat ion will increase in the 11MP as high education standards are paramount for any developed nation.

Stock Picks

• Gamuda - PDP for the MRT Line 2 but we are cautious in the short term due to an earnings gap that arises from the timing difference between Line 1 and Line 2.
• IJM - One of the few large sized corporatized contractors with a strong track record in PPP-type jobs.
• Edgenta - Consultancy for construction and infra projects via Opus and highway related jobs via PROPEL.
• Lafarge - Market leader in the domestic cement market.
• Sasbadi - To benefit from the Government’s push for S TEM education and online learning.
• Prestariang - Workforce reskilling and PISA Acceleration Project.

Source: Hong Leong Investment Bank Research - 5 May 2015