We believe investors should stand by in wetsuits, ready to take the plunge and dive for value if the announcement of the dissolution of the parliament does trigger a heavy selldown on construction stocks. After the 13th General Election when the dust settles, we believe investors should refocus on sector fundamentals that are reasonably attractive underpinned by a construction upcycle. Our top picks are Gamuda and Naim.

Gross development expenditure only inches up 0.2%, but construction GDP grows 10.5%. In Budget 2013, gross development expenditure is projected at RM47.8bn, only inching up 0.2% yoy, but construction GDP growth is projected to remain robust at 10.5%, thanks to construction activities to be generated by: (1) Private-sector-led projects; (2) “Off-balance-sheet” large-scale infrastructure and property development projects; (3) Investment in the oil & gas sector; and (4) Housing construction activities.

Our top picks are Gamuda and Naim. We like Gamuda (FV = RM4.49): (1) As it is the best proxy to public infrastructure spending in Malaysia; (2) As we believe the Sg buloh – Kajang (SBK) MRT Line project has gone beyond “the point of no return”; and (3) For its large market capitalisation and high share liquidity. We like Naim (FV = RM3.42): (1) As it is trading at a glaring discount to its break-up value (i.e. its 33.6% stake in Dayang is already worth about RM500m that is about equivalent to Naim’s market capitalisation, which means zero value is being ascribed to its core construction and property businesses); and (2) As it is a good proxy play to the property boom in Bintulu; and (3) For its on-going initiatives to shake off its Sarawak-centric and owner-operator image/model.

Source: RHB