The government has announced that Khazanah and EPF will retain ownership of PLUS, the North-South Highway concessionaire, relieving the concerns highlighted in Macquarie Equities Research’s (MQ Research) report (16 Jan). The PLUS deal is estimated to save road users RM1.1bn p.a. in tolls, which, coupled with the soon to be firmed up fuel subsidy program, supports private sector consumption.

Reflective of its key thematics, MQ Research’s key picks include names like CIMB, Gamuda…

Event

• The government has announced that PLUS, the North-South Highway concessionaire, will remain in the ownership of Khazanah and EPF, allaying concerns of a return to opaque backdoor deals, which would negatively impact the country over the long run. With this issue now resolved, MQ Research expects the government to move forward on the restructuring of other toll operations, with an agenda to reduce costs for the consumer. The previously announced acquisition of four urban toll roads in the Klang Valley is next, in MQ Research’s view. MQ Research also expects announcements around other construction-related jobs and other government-related spending in coming months to catalyse the market after a prolonged lull since the General Election 14 in May 2018.

Impact

• PLUS deal saves road users RM1.1bn. The deal is estimated to save road users RM1.13bn p.a. in tolls. This coupled with the (delayed but soon to be firmed up) fuel subsidy program, supporting private sector consumption. For toll concessionaires, lower tolls have historically proven to be supportive of traffic volumes and historically benefited concessionaires in the longer term.
• RM17bn expected in 2020. Macquarie’s Malaysian construction analyst, Aiman Mohamad, expects RM17bn worth of construction projects to be announced in 2020, with the RM9bn Penang Transport Master Plan (PTMP) LRT project and RM5bn East Coast Rail Line (ECRL) related jobs forming the bulk of this. These will be key contributors to the government’s own projection for a 3.7% lift in the construction sector’s contribution to gross domestic product (GDP) in 2020.
• Urban toll road acquisitions ahead. MQ Research sees the government’s acquisition of four urban highways (SPRINT, LDP, Kesas and SAMRT) for RM6bn, as part of its plan to reduce the urban cost of living, as the next key event in the space. Gamuda, which has a stake in these highways is, in MQ Research’s view, likely to use the sale proceeds (RM2.3bn) to fund the PTMP project (RM1.5bn) and return excess capital to shareholders (MQ est 15sen/sh or RM0.4bn)

Outlook

• While politics continues to dominate the press and overshadow market sentiment, MQ Research expects incremental newsflow on key projects to provide catalysts for the market and business confidence. Additionally, higher crude palm oil (CPO) prices are stimulative of the rural economy. Positive flows from trade diversion are also cropping up. Also, an improving purchasing manager’s index (PMI) (the highest in 15 months at 50 as at end-Dec19) suggest that the real economy may be on a firmer footing than the market is willing to concede at this point.
• MQ Research’s key picks for Malaysia are reflective of its key thematics, ie 1) increased government activity (Gamuda, Ranhill, CIMB, MyNews), 2) policy reforms (Tenaga, Telekom M’sia), and 3) the global thematic (Sime Plant, IHH, Top Glove, PChem).

Source: Macquarie Research - 17 Jan 2020