May 7, 2012 REGION AL MALAYSIA CONSTRUCTION SHORT TERM (3 MTH) LONG TERM SINGAPORE INDONESIA THAILAND PHILIPPINES CHINA, HONG KONG Conviction Notes from the Field More miles to go for rail and highway jobs The local construction scene remains buoyant as a slew of rail and highway projects are set to be awarded in the medium term. A couple of other projects could also come onstream if they pass feasibility tests and if political factors are favourable. Sharizan Rosely T (60) 3 20849864 Figure 1: Major transport infra jobs E [email protected] Projects Total cost/est. Status MRT SBK line RM20bn Awards in progress “The PDP will speed up MRT 2 (circle line) & MRT 3 c.RM40bn Detailed feasibility study in 2H12 West Coast Expressway (WCE) RM7.1bn Pending signing of CA the award of the Suke - highway RM1.6-2.4bn Under study remaining elevated Dash - highway RM1-1.6bn Under study Kidex- highway RM2.2bn Under study packages of MRT SBK line High Speed Rail (KL-S'pore) RM30bn Detailed feasibility study in 2H12 from Oct-12 to early SOURCES: CIMB, COMPANY REPORTS 3Q12.” Job awards will continue to be led by ─ A source in PDP Indications of timing the MRT SBK line packages. We Feasibility studies for MRT 2 & 3 and expect newsflow to be good in 2H12. the high speed rail (HSR) will be in This continues to anchor our Trading full swing in 2H12 and decisions are Buy stance on the sector, which is not likely by year-end. MRT Corp will an Overweight because of political award the remaining elevated risk. Gamuda and IJM Corp are still packages for the SBK line by early our top picks. 3Q12. Driven by the MRT, job awards Transport infrastructure goes in 2012 could total RM20bn-25bn compared to RM8.7bn in 2010 and beyond KVMRT RM8.1bn last year. Of the total In this report, we focus on the outlook RM13.2bn awards YTD, 81% or for large-scale rail and highway RM10.7bn was for rail-related works. projects and show that traffic alleviation/dispersal initiatives under Potential winners the 10MP and ETP go beyond the Potential winners of the remaining KVMRT. Working on either the cost packages of the elevated portion of Highlighted Companies quoted in the press or the benchmark the MRT SBK line are the 28 IJM Corp cost/km, we estimate the highway prequalifiers, 13 of which are listed IJM Corp is among the main beneficiaries of and rail jobs to be worth c.RM95bn in contractors. Among the 13, we gather large-scale projects including the RM7.1bn West total. The rollout of job awards will Coast Expressway (WCE), RM1bn extension of that TRC Synergy, Mudajaya, Sunway, New Pantai Expressway (NPE) and KVMRT. It could focus on the MRT SBK line over the Fajarbaru, Gadang, WCT and Loh & still win another MRT elevated package. next few months. Loh stand a good chance of bagging Gamuda Our checks indicate that three urban the viaduct and station packages. Key The group is the winner of the RM8.3bn winners of the WCE remain IJM Corp underground works for MRT SBK line and the highways – Sg. Besi-Ulu Kelang frontrunner for the RM8bn Gemas-JB double Expressway (Suke), Damansara-Shah and KEuro. For Kidex, Bina Puri and tracking project. It could be one of the beneficiaries Mudajaya were reportedly among the of the HSR given its rail expertise. Alam Highway (Dash) and Kinrara-Damansara Expressway contenders. We continue to believe Mudajaya (Kidex) – are already at the planning that the MMC-Gamuda JV has a good Mudajaya has access capacity to undertake large chance of emerging as the main scale highway jobs. The group is vying for two stage. subcontract packages from WCE, and was winner of MRT 2 & 3. reportedly one of the frontrunners of another urban elevated highway worth RM2.2bn. IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA Sources: CIMB. COMPANY REPORTS CONSTRUCTION May 7, 2012 KEY CHARTS Major incoming Klang Valley jobs to focus on transport infra – highways and rail Projects Total cost/est. Status We estimate that RM95bn worth of highway and rail jobs MRT SBK line RM20bn Awards in progress could come onstream from this year onwards and buoy construction activities. The rollout of job awards will MRT 2 (circle line) & MRT 3 c.RM40bn Detailed feasibility study in 2H12 focus on the MRT SBK line over the next few months. In West Coast Expressway (WCE) RM7.1bn Pending signing of CA the short term, at least three more packages (v1, v4 and Suke - highway RM1.6-2.4bn Under study v7) of the SBK line, each worth an estimated RM800m-1bn, will be awarded. Dash - highway RM1-1.6bn Under study Kidex- highway RM2.2bn Under study High Speed Rail (KL-S'pore) RM30bn Detailed feasibility study in 2H12 RM20bn-25bn contracts could be awarded RM m this year 30,000 We expect the total value of local job awards in 2H12 to 25,000 be double the RM13.2bn achieved in 1H12. Driven by the 25,000 MRT, job awards in 2012 could total RM20bn-25bn 20,000 compared to RM8.7bn in 2010 and RM8.1bn last year. Of the total RM13.2bn awards YTD, 81% or RM10.7bn 15,000 13,154 was for rail-related works. 10,000 8,650 8,100 5,000 0 2010 2011 1H12 2012E Identifying the potential winners 28 companies have prequalified for the remaining packages of the elevated portion of the MRT SBK line. Projects Potential winners Among the 13 that are listed companies, TRC Synergy, MRT SBK line : 13 listed contractors - see chart Mudajaya, Sunway, Fajarbaru, Gadang, WCT and Loh & MRT 2 (circle line) & MRT 3 : MMC-Gamuda has a good chance Loh stand a good chance of bagging the viaduct and West Coast Expressway (WCE) : IJM Corp, KEuro, WCT, Mudajaya station packages. Key winners of the WCE remain IJM Corp and Keuro. Recent press reports on Kidex indicated Suke - highway : Various/unknown that Bina Puri and Mudajaya are among the likely Dash - highway : Various/unknown winners. The MMC-Gamuda JV has a good chance of Kidex - highway : Mudajaya, Bina Puri emerging as the main winner of MRT 2 & 3. High Speed Rail (KL-S'pore) : YTL Corp (the original proposer) Order book and potential top-ups Contractors under our coverage are looking at 9,000 RM1bn-4bn worth of new contracts by end-2012. Their current outstanding order books of RM2bn-6bn should 7,500 6,000 1,000 last for at least two years. 4,000 4,500 1,500 1,500 1,000 3,000 5,800 1,000 1,000 3,500 4,000 1,500 2,840 3,100 2,200 2,500 0 Gamuda IJM Corp MRCB Muhibbah Mudajaya Sunway WCT Outstanding order book YTD (RM m) Potential replenishment by end 2012 (RM m) SOURCE: CIMB, COMPANY REPORTS 2 CONSTRUCTION May 7, 2012 Figure 2: Sector Comparisons Bloomberg Price Target Price Market Cap Core P/E (x) 3-year EPS P/BV (x) Recurring ROE (%) EV/EBITDA (x) Dividend Yield (%) Company Recom. Ticker (local curr) (local curr) (US$ m) CY2011 CY2012 CAGR (%) CY2011 CY2012 CY2011 CY2012 CY2013 CY2011 CY2012 CY2011 CY2012 Gamuda GAM MK Trading Buy 3.61 4.55 2,465 15.4 12.8 23.7% 3.85 3.62 24.8% 29.2% 30.2% 21.3 15.7 3.1% 3.2% IJM Corp Bhd IJM MK Trading Buy 5.58 6.55 2,535 18.3 14.6 29.4% 3.08 2.90 17.1% 20.5% 21.4% 12.7 10.5 2.0% 2.1% Malaysian Resources Corp MRC MK Trading Buy 1.74 2.40 793 30.9 26.9 19.4% 2.80 2.54 9.8% 9.7% 11.1% 19.5 11.8 1.1% 1.4% MTD ACPI Engineering ACP MK Underperform 0.36 0.44 27 na na na 0.49 0.53 -9.6% -6.3% -6.2% 76.1 16.4 1.9% 1.9% Muhibbah Engineering MUHI MK Trading Buy 1.27 1.60 170 8.3 7.2 37.7% 0.84 0.82 10.1% 11.5% 12.6% 7.1 7.0 3.9% 3.9% Mudajaya Group MDJ MK Trading Buy 2.80 3.45 506 6.6 5.7 16.6% 1.62 1.28 28.7% 24.5% 23.8% 3.5 2.5 2.9% 3.0% Sunway Bhd SWB MK Neutral 2.31 2.65 982 8.1 8.4 -14.8% 1.07 0.87 14.1% 11.2% 10.8% 13.9 7.3 0.0% 3.9% WCT Bhd WCT MK Trading Buy 2.46 3.00 664 12.0 11.1 13.9% 1.42 1.29 12.7% 12.1% 13.3% 13.6 8.7 4.0% 4.0% Malaysia average 17.7 14.4 26.8% 2.99 2.82 17.1% 20.1% 21.2% 15.2 11.9 2.4% 2.5% Adhi Karya ADHI IJ Outperform 1,060 1,100 207 10.5 9.9 13.4% 1.94 1.68 19.6% 18.3% 21.6% 4.0 3.3 2.3% 2.2% Pembangunan Perumahan PTPP IJ Outperform 760.0 760.0 399 15.3 14.5 21.8% 2.58 2.29 18.4% 16.4% 20.6% 6.2 6.3 1.6% 1.7% Total Bangun Persada TOTL IJ Outperform 570.0 675.0 211 15.6 11.5 31.7% 3.07 2.67 20.4% 24.8% 22.0% 7.5 5.7 2.2% 3.3% Wijaya Karya WIKA IJ Outperform 1,100 1,200 720 18.7 15.0 24.7% 3.20 2.76 15.5% 16.6% 17.8% 11.6 11.0 0.9% 1.4% Indonesia average 15.6 13.3 22.0% 2.78 2.42 17.6% 17.9% 19.8% 7.2 6.6 1.4% 1.8% CH.