News Item: : Infrastructure faces bumpier road
(Category: Publication - The Edge)
Posted by Web Master
Friday, 14 March 2008
Excerpts from CIMB Research Report
WE are turning cautious on the construction sector due to several risks emerging from the changing political landscape, including the possible (i) delay of projects in Selangor and Penang, (ii) slowdown in the rollout of Ninth Malaysia Plan (9MP) jobs via the five growth corridors and (iii) delay in the implementation of RM73.2 billion worth of mega projects.
The west coast factor
We identify five mega jobs totalling RM35.9 billion in Penang and Selangor which could be at risk. Although the RM3.1 billion West Coast Expressway (WCE) has been awarded to Konsortium LPB, it remains to be seen if the project can get off the ground soon, given land acquisition issues.
In Penang, although Malaysian Resources Corp Bhd (MRCB) has received a letter of intent (LOI) for the RM1.6 billion Penang Monorail project, the official award of the job could take a while. This also applies to the tender results for the RM1.2 billion Penang Outer Ring Road (PORR) which IJM Corp has also bid for.
According to media reports, the RM25 billion Penang Global City Centre (PGCC) is likely to come under review. Even the approved and awarded RM3 billion second Penang bridge could encounter hiccups as the new chief minister (CM) said that funding should come from Petronas instead of China’s Exim Bank.
However, we take the view that the RM5 billion Langat 2 water treatment plant and the RM3.8 billion Pahang-Selangor interstate water transfer tunnel will progress as planned, given the need for the project.
We identify at least nine more mega projects totalling RM73.2 billion that are still in the pipeline, most of which are initiated by the federal government. In addition to this, the cluster of key jobs coming from the growth corridors totalled RM66.9 billion, which brings the total outstanding high-impact projects over the coming years to RM187.9 billion.
As at end-07, eight mega jobs worth RM47.8 billion have been awarded and approved. They include the RM12.5 billion northern double-tracking project, RM2.7 billion second Penang bridge and RM3.1 billion West Coast Expressway (WCE).
Downgrade construction sector to neutral
We remain positive on the prospects for Gamuda and WCT Engineering as they offer 50%-65% earnings exposure to the Gulf states and long-term exposure to Vietnam. With the exceptions of Gamuda and WCT, we apply discounts of 30%-50% to realised net asset value (RNAV) and a lower construction price-earnings (PE) of 13.5 times (18 times previously) as we align it to our target market PE.
Gamuda (outperform). We have cut the target price from RM7.40 to RM5.56 as we now apply a 20% discount to its RNAV, on top of tagging a lower PE of 13.5 times (18 times previously) to its construction profits, given our reduced target P/E for the market. We use a lower discount for Gamuda in view of its strong fundamental and superior dividend yields.
WCT Engineering (outperform). WCT’s outstanding construction order book comes mainly from the Gulf states, which makes up more than half of its RM5.4 billion worth of outstanding jobs. These projects totalling RM3.5 billion also represent its only exposure to the overseas construction scene.
Its maiden US$700 million (RM2.26 billion) Platinum project in Ho Chi Minh should contribute handsomely in 2010 and could open the door to more property projects in that region.
We are cutting WCT’s RNAV-based target price from RM5.50 to RM4.63 as we tag the 13.5 times PE to its construction net profit component, which constitutes 56% of RNAV. We believe WCT does not deserve to trade at a discount to its RNAV, mainly because of its exposure to the booming Gulf region.
IJM Corp offers 40% exposure to overseas. We are downgrading IJM Corp from outperform to neutral, given its greater exposure to local jobs. The bulk of its RM6 billion outstanding order book comes from India, where it faces the risk of margin compression. We are cutting our RNAV-based target price from RM10.83 to RM6.90.
MRCB’s outstanding order book of RM2.5 billion is almost entirely local. MRCB, the main contender for the RM1.6 billion Penang monorail, expects the tender results to be announced later rather than sooner.
We maintain our trading buy call for MRCB but cut our RNAV-based target price from RM4 to RM2.60 as we scale back our earnings forecasts by 16%-26% for lower order book replenishment. Even with the cut in earnings, the stock is trading at a PE of 13.4 times for CY09 and 10 times for CY10 PE. Sixty per cent of its RNAV comes from KL Sentral land.
Ekovest is still cheap but with diminishing catalysts. The slower-than-expected progress for Danga Bay in the Iskandar Development Region (IDR) may take a much longer time to bear fruit. Although in our universe, Ekovest is the only proxy for the long-term prospects of IDR, we are downgrading the stock from trading buy to neutral in view of the disappointing progress.
We are cutting our target price from RM3 to RM1.94 as we tag a 30% discount to the existing construction PE of 12 times, which is lower than our target market PE of 13.5 times. We are slashing FY09-10 forecasts by 26%-32% as we now assume no order book replenishment from the IDR and tag a higher discount of 50% to its RNAV in view of the company’s weaker order book replenishment and smaller market cap.
Mudajaya is still attractive. Delving into Mudajaya’s outstanding order book of RM2.9 billion as at end-Dec 07, we find that almost 50% relates to E&P works for its Indian independent power producer (IPP) venture. For the remaining 50%, there appears to be a good mix between private and public sector contracts. Hence, we do not expect Mudajaya to be severely impacted by the possible delay in the rollout of some of the local infrastructure projects.
Nevertheless, in line with the lower target PE for the construction sector, our end-08 target price for Mudajaya is revised downwards from RM7.30 to RM4.90 as we continue to apply a 10% discount to our revised target construction sector PE of 13.5 times (20 times previously), given its smaller market cap.
We continue to like Mudajaya in view of its sizeable order book and recurring income prospects for its IPP ventures. Key share price triggers remain i) positive news flow on its IPP ventures and ii) award of more local construction projects. Maintain buy.
MTD-ACPI Engineering — the worst is in the price. We are maintaining our earnings forecasts as we have been conservative in our forecast for the precast concrete operations as we wait for the major infrastructure project to kick off. Only 20% of the group’s FY09 earnings forecast is expected to come from the precast concrete operations.
It is business as usual for the construction division, which is focusing on the ongoing East Coast Expressway (Phase II) and South Luzon Expressway jobs. However, we are downgrading our target price from RM3.52 (12 times CY09 PE target) to RM3.16, which is based on 10.8 times CY09 PE, a 20% discount to our 13.5 times CY09 P/E target for the construction sector.
The 20% discount reflects its smaller market cap and tight free float. We believe most of the bad news is already in the price which has fallen by more than 40% since the start of the year. MTD-ACPI remains an outperform.
Puncak Niaga — still a potential privatisation play but risk profile has changed. Although our forecasts are unchanged, our discounted cash flow-based (DCF) target price is cut from RM6.90 to RM5.38 as we apply a higher 30% discount (10% previously) to the DCF value of RM7.69.
The wider discount reflects the timing risks arising from the possible delay in industry consolidation in Selangor. We downgrade the stock from outperform to trading buy in view of (i) the risk of delays for Langat 2 as the opposition has wrested control of Selangor, and (ii) risks of intense scrutiny into future tariff hikes as well as delays in payment.
However, when the political uncertainty clears, the stock may draw interest again if it sees success in regional ventures or Selangor’s water industry is privatised.
Water sector
Interstate water transfer — major catalyst project. As noted in earlier reports, the RM8 billion-RM10 billion Pahang-Selangor interstate raw water transfer project will be the major catalyst for activity within the sector. With the Selangor state now in the hands of the opposition, it remains to be seen if this crucial project will proceed as scheduled.
To recap, we expected construction works for Langat 2 to kick off by mid-08, with phase one slated for completion by 2011, just in time to avoid Selangor’s anticipated water shortage problem.
At this juncture, the award of construction works for the RM3.8 billion water transfer tunnel to one of the four shortlisted Japanese bidders has yet to take place. Before the election, it was indicated that the tunnelling portion would be awarded by end-June 08.
Given that the construction of the water transfer tunnel and Langat 2 must coincide, any delays in the former would inevitably affect the latter. Nevertheless, this is an urgent project given that any delays could lead to a water shortage in Selangor.
With Selangor, Kuala Lumpur and Putrajaya being the nation’s political, commercial and industrial hub, we do not expect the project to be delayed significantly. Construction has to start by 2H08 to avert a possible water shortage by 2012.
However, the proposed consolidation of Selangor’s water assets, to be spearheaded by Kumpulan Perangsang Selangor (KUPS, not rated), might take longer than expected, given the change in the Selangor state government. It was reported in the press yesterday that the possible takeover of Puncak Niaga and contracts like the supply of pipes for Langat 2 may be reviewed.
However, water matters have been federalised with the enactment of the two Water Acts and their subsequent enforcement on Jan 1. This provides some degree of certainty as the federal government will effectively be handling all water-related matters.
Valuation and recommendation
We reiterate our overweight stance on the water sector, with key re-rating catalysts being i) more news flow on Langat 2, ii) the award of the tunnelling portion of the water transfer programme and iii) eventual consolidation of Selangor’s water assets.
Our top pick for the sector is the potential privatisation play, Puncak Niaga which is downgraded to a trading buy after a cut in its target price to RM5.38.
This news item is from MTD ACPI Engineering Berhad
( http://www.mtdacpi.com/news.php?extend.10 )
(Category: Publication - The Edge)
Posted by Web Master
Friday, 14 March 2008
Excerpts from CIMB Research Report
WE are turning cautious on the construction sector due to several risks emerging from the changing political landscape, including the possible (i) delay of projects in Selangor and Penang, (ii) slowdown in the rollout of Ninth Malaysia Plan (9MP) jobs via the five growth corridors and (iii) delay in the implementation of RM73.2 billion worth of mega projects.
The west coast factor
We identify five mega jobs totalling RM35.9 billion in Penang and Selangor which could be at risk. Although the RM3.1 billion West Coast Expressway (WCE) has been awarded to Konsortium LPB, it remains to be seen if the project can get off the ground soon, given land acquisition issues.
In Penang, although Malaysian Resources Corp Bhd (MRCB) has received a letter of intent (LOI) for the RM1.6 billion Penang Monorail project, the official award of the job could take a while. This also applies to the tender results for the RM1.2 billion Penang Outer Ring Road (PORR) which IJM Corp has also bid for.
According to media reports, the RM25 billion Penang Global City Centre (PGCC) is likely to come under review. Even the approved and awarded RM3 billion second Penang bridge could encounter hiccups as the new chief minister (CM) said that funding should come from Petronas instead of China’s Exim Bank.
However, we take the view that the RM5 billion Langat 2 water treatment plant and the RM3.8 billion Pahang-Selangor interstate water transfer tunnel will progress as planned, given the need for the project.
We identify at least nine more mega projects totalling RM73.2 billion that are still in the pipeline, most of which are initiated by the federal government. In addition to this, the cluster of key jobs coming from the growth corridors totalled RM66.9 billion, which brings the total outstanding high-impact projects over the coming years to RM187.9 billion.
As at end-07, eight mega jobs worth RM47.8 billion have been awarded and approved. They include the RM12.5 billion northern double-tracking project, RM2.7 billion second Penang bridge and RM3.1 billion West Coast Expressway (WCE).
Downgrade construction sector to neutral
We remain positive on the prospects for Gamuda and WCT Engineering as they offer 50%-65% earnings exposure to the Gulf states and long-term exposure to Vietnam. With the exceptions of Gamuda and WCT, we apply discounts of 30%-50% to realised net asset value (RNAV) and a lower construction price-earnings (PE) of 13.5 times (18 times previously) as we align it to our target market PE.
Gamuda (outperform). We have cut the target price from RM7.40 to RM5.56 as we now apply a 20% discount to its RNAV, on top of tagging a lower PE of 13.5 times (18 times previously) to its construction profits, given our reduced target P/E for the market. We use a lower discount for Gamuda in view of its strong fundamental and superior dividend yields.
WCT Engineering (outperform). WCT’s outstanding construction order book comes mainly from the Gulf states, which makes up more than half of its RM5.4 billion worth of outstanding jobs. These projects totalling RM3.5 billion also represent its only exposure to the overseas construction scene.
Its maiden US$700 million (RM2.26 billion) Platinum project in Ho Chi Minh should contribute handsomely in 2010 and could open the door to more property projects in that region.
We are cutting WCT’s RNAV-based target price from RM5.50 to RM4.63 as we tag the 13.5 times PE to its construction net profit component, which constitutes 56% of RNAV. We believe WCT does not deserve to trade at a discount to its RNAV, mainly because of its exposure to the booming Gulf region.
IJM Corp offers 40% exposure to overseas. We are downgrading IJM Corp from outperform to neutral, given its greater exposure to local jobs. The bulk of its RM6 billion outstanding order book comes from India, where it faces the risk of margin compression. We are cutting our RNAV-based target price from RM10.83 to RM6.90.
MRCB’s outstanding order book of RM2.5 billion is almost entirely local. MRCB, the main contender for the RM1.6 billion Penang monorail, expects the tender results to be announced later rather than sooner.
We maintain our trading buy call for MRCB but cut our RNAV-based target price from RM4 to RM2.60 as we scale back our earnings forecasts by 16%-26% for lower order book replenishment. Even with the cut in earnings, the stock is trading at a PE of 13.4 times for CY09 and 10 times for CY10 PE. Sixty per cent of its RNAV comes from KL Sentral land.
Ekovest is still cheap but with diminishing catalysts. The slower-than-expected progress for Danga Bay in the Iskandar Development Region (IDR) may take a much longer time to bear fruit. Although in our universe, Ekovest is the only proxy for the long-term prospects of IDR, we are downgrading the stock from trading buy to neutral in view of the disappointing progress.
We are cutting our target price from RM3 to RM1.94 as we tag a 30% discount to the existing construction PE of 12 times, which is lower than our target market PE of 13.5 times. We are slashing FY09-10 forecasts by 26%-32% as we now assume no order book replenishment from the IDR and tag a higher discount of 50% to its RNAV in view of the company’s weaker order book replenishment and smaller market cap.
Mudajaya is still attractive. Delving into Mudajaya’s outstanding order book of RM2.9 billion as at end-Dec 07, we find that almost 50% relates to E&P works for its Indian independent power producer (IPP) venture. For the remaining 50%, there appears to be a good mix between private and public sector contracts. Hence, we do not expect Mudajaya to be severely impacted by the possible delay in the rollout of some of the local infrastructure projects.
Nevertheless, in line with the lower target PE for the construction sector, our end-08 target price for Mudajaya is revised downwards from RM7.30 to RM4.90 as we continue to apply a 10% discount to our revised target construction sector PE of 13.5 times (20 times previously), given its smaller market cap.
We continue to like Mudajaya in view of its sizeable order book and recurring income prospects for its IPP ventures. Key share price triggers remain i) positive news flow on its IPP ventures and ii) award of more local construction projects. Maintain buy.
MTD-ACPI Engineering — the worst is in the price. We are maintaining our earnings forecasts as we have been conservative in our forecast for the precast concrete operations as we wait for the major infrastructure project to kick off. Only 20% of the group’s FY09 earnings forecast is expected to come from the precast concrete operations.
It is business as usual for the construction division, which is focusing on the ongoing East Coast Expressway (Phase II) and South Luzon Expressway jobs. However, we are downgrading our target price from RM3.52 (12 times CY09 PE target) to RM3.16, which is based on 10.8 times CY09 PE, a 20% discount to our 13.5 times CY09 P/E target for the construction sector.
The 20% discount reflects its smaller market cap and tight free float. We believe most of the bad news is already in the price which has fallen by more than 40% since the start of the year. MTD-ACPI remains an outperform.
Puncak Niaga — still a potential privatisation play but risk profile has changed. Although our forecasts are unchanged, our discounted cash flow-based (DCF) target price is cut from RM6.90 to RM5.38 as we apply a higher 30% discount (10% previously) to the DCF value of RM7.69.
The wider discount reflects the timing risks arising from the possible delay in industry consolidation in Selangor. We downgrade the stock from outperform to trading buy in view of (i) the risk of delays for Langat 2 as the opposition has wrested control of Selangor, and (ii) risks of intense scrutiny into future tariff hikes as well as delays in payment.
However, when the political uncertainty clears, the stock may draw interest again if it sees success in regional ventures or Selangor’s water industry is privatised.
Water sector
Interstate water transfer — major catalyst project. As noted in earlier reports, the RM8 billion-RM10 billion Pahang-Selangor interstate raw water transfer project will be the major catalyst for activity within the sector. With the Selangor state now in the hands of the opposition, it remains to be seen if this crucial project will proceed as scheduled.
To recap, we expected construction works for Langat 2 to kick off by mid-08, with phase one slated for completion by 2011, just in time to avoid Selangor’s anticipated water shortage problem.
At this juncture, the award of construction works for the RM3.8 billion water transfer tunnel to one of the four shortlisted Japanese bidders has yet to take place. Before the election, it was indicated that the tunnelling portion would be awarded by end-June 08.
Given that the construction of the water transfer tunnel and Langat 2 must coincide, any delays in the former would inevitably affect the latter. Nevertheless, this is an urgent project given that any delays could lead to a water shortage in Selangor.
With Selangor, Kuala Lumpur and Putrajaya being the nation’s political, commercial and industrial hub, we do not expect the project to be delayed significantly. Construction has to start by 2H08 to avert a possible water shortage by 2012.
However, the proposed consolidation of Selangor’s water assets, to be spearheaded by Kumpulan Perangsang Selangor (KUPS, not rated), might take longer than expected, given the change in the Selangor state government. It was reported in the press yesterday that the possible takeover of Puncak Niaga and contracts like the supply of pipes for Langat 2 may be reviewed.
However, water matters have been federalised with the enactment of the two Water Acts and their subsequent enforcement on Jan 1. This provides some degree of certainty as the federal government will effectively be handling all water-related matters.
Valuation and recommendation
We reiterate our overweight stance on the water sector, with key re-rating catalysts being i) more news flow on Langat 2, ii) the award of the tunnelling portion of the water transfer programme and iii) eventual consolidation of Selangor’s water assets.
Our top pick for the sector is the potential privatisation play, Puncak Niaga which is downgraded to a trading buy after a cut in its target price to RM5.38.
This news item is from MTD ACPI Engineering Berhad
( http://www.mtdacpi.com/news.php?extend.10 )