Budget may spur builder rally: Credit Suisse
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Malaysian builders are poised to gain as the government gives details on the biggest construction projects including a RM45 billion (US$15 billion) mass rail network in the budget tomorrow, Credit Suisse Group AG said. "We are big believers" in the rail project, Stephen Hagger, head of equities at Credit Suisse in Kuala Lumpur, said in an interview yesterday. "The construction sector will be a key beneficiary of the budget." The Southeast Asian nation's government said on Sept. 21 it plans to develop a nuclear energy industry, build a mass rail network and create a shopping district to rival Singapore's Orchard Road. The plans are part of the US$444 billion worth of private-sector-led projects it has identified to accelerate growth and reshape it into a high-income nation.
Hagger, whose team was ranked second for Malaysian research in Institutional Investor's 2010 Asian poll, favors construction stocks such as Gamuda Bhd, IJM Corp and MMC Corp as the budget may provide a "re-rating catalyst" for the building industry. The 156 kilometer mass rail network project in Kuala Lumpur proposed by Gamuda and MMC will be able to serve 2 million passengers a day, Credit Suisse analyst Danny Goh said in a report on Oct. 7. It's a "key cornerstone project" in the government's economic advancement plans, he said. Builders Rally Shares of Gamuda, Malaysia's second-largest builder by market value, have surged 52 per cent this year, outpacing the FTSE Bursa Malaysia KLCI index's 18 per cent gain, and making Gamuda the second-best performer on the benchmark measure. IJM Corp, the third-largest builder, has risen 18 per cent while MMC is up 26 per cent. The Kuala Lumpur Construction Index of 49 stocks has rallied 20 per cent this year, surpassing levels before the start of the global financial crisis in 2008. The broader benchmark index is near its record close of 1,516.22 on Jan. 11, 2008. It rose 0.3 percent to 1,500.87 at 9:05 a.m. Malaysia's stock market has "rediscovered its long-lost mojo," evidenced by rising trading volumes as a stronger ringgit and economy lure investors, Hagger and his team wrote in a report on Sep. 28. Prime Minister Datuk Seri Najib Razak aims to rejuvenate an economy where growth fell to an average 4.7 per cent a year in the past decade from 7.2 per cent in the 1990s, when then-Prime Minister Tun Mahathir Mohamad wooed overseas manufacturers, built highways and the world's tallest twin towers.
The budget may also focus on garnering political support ahead of general elections that must be held by 2013. "What we believe will be an election budget will be supportive of some of the measures" proposed by Pemandu, the government's Performance Management and Delivery Unit, and outlined in a five-year development plan, Hagger said. In 2008, the ruling Barisan Nasional coalition had its slimmest election victory in more than 50 years as the opposition criticized the government for ethnic bias and failing to tame poverty and corruption. Najib faces his first election as prime minister by 2013. -- Bloomberg