The government finally unveiled the 11th Malaysia Plan (11MP), the last 5- year plan for the country to achieve High Income Nation status by 2020. We are POSITIVE on the announcement as most of the mega projects announced are in line with our expectations (i.e. MRT2, LRT3, HSR, Pan Borneo Highway) except for these projects namely: (i) developing the west part of Negeri Sembilan (Nilai, Seremban and Port Dickson) called “Malaysia Vision Valley” project spanning 108,000 ha, (ii) six new hospitals, (iii) RM2.0b sewerage treatment plant and pipe network in Perak, and (iv) a new airport in Mukah, Sarawak. All in, we are positive on the 11MP announcement given that the government is committed to implementing the announced projects within the next five years. We reaffirm our view that these projects will benefit the whole construction sector and as such, we reiterate our OVERWEIGHT view on the sector with IJM (OP; TP: RM7.93), MMCCORP (OP; TP: RM3.03) and MITRA (TB; FV: RM2.37) as our top pick.

11MP unveiled. Yesterday, the government finally unveiled 11MP, the 5-year plan for the country to achieve High Income Nation status by 2020. The government is allocating RM260.0b for the entire 11MP which we believe a huge portion will be allocated for infrastructure spending.

Actual vs expectations. We are POSITIVE on the announcement as most of our initial expectations have been met. Among the project names that within our expectations are: MRT2, LRT3, KL-Singapore HSR, Pan Borneo Highway. Nonetheless, some projects that we expected to be included in 11MP such as MRT3 (Circle Line), new highways, Bandar Malaysia and the redevelopment of Kg Baru were not announced. Furthermore, the government also included some projects that were previously announced namely Electrified Double Track Gemas-JB, Pengerang Integrated Petroleum Complex (PIPC) and five new power plants.

What’s new? The government also announced some new projects namely: (i) developing the west part of Negeri Sembilan (Nilai, Seremban and Port Dickson) called “Malaysia Vision Valley” project spanning 108,000 ha, (ii) six new hospitals, (iii) RM2.0b sewerage treatment plant and pipe network in Perak, and (iv) a new airport in Mukah, Sarawak.

The potential beneficiaries. We reaffirm our view that the whole sector should benefit from the 11MP. In specific, the MRT1 and LRT2 contractors that already have exposure in both projects should benefit from MRT2 and LRT3. As for the KLSingapore HSR, recall, those that expressed their interests to undertake the project are: UEM Group, YTL, GAMUDA, MMCCORP, IJM and WCT. Meanwhile, contractors with expertise in site preparation and earthworks such as WCT and GADANG will benefit from the initial stage of development of Malaysian Vision Valley. As for more specialized works such as segmental box girders, piling jobs and structural steel works (super structure building), SENDAI, KIMLUN, PTARAS and ECONBHD are the main beneficiaries. As for PIPC jobs, we believe MUHIBAH could participate in civil engineering jobs.

Maintain OVERWEIGHT. All in, we are positive on the 11MP announcement given the government’s commitment in implementing the announced projects within the next five years. We reaffirm our view that these projects will benefit the whole construction sector and as such, we reiterate OVERWEIGHT on the sector with IJM (OP; TP: RM7.93), MMCCORP (OP; TP: RM3.03) and MITRA (TB; FV: RM2.37) as our top pick.

Source: Kenanga Research - 22 May 2015