Sunday, January 6th, 2019
PETALING JAYA: Most analysts are optimistic on the prospects of the construction sector this year, saying it is set for a “mini rebound” given the clarity on the sector moving forward and anticipation that the government would give the green light to resume some on-hold projects.
Last week, Prime Minister Tun Dr Mahathir Mohamad was quoted as saying that the East Coast Rail Link (ECRL) project could resume on a smaller scale if China agrees. The project was terminated last July.
The construction industry took a severe beating last year and the KL Construction Index fell almost 50% following the review of major infrastructure projects after the 14th general election (GE14).
Construction counters have declined between 25% and 60% since the May 9 election, with most of the stocks currently trading well below their fundamentally assessed trough valuations.
Rakuten Trade Sdn Bhd vice-president of research Vincent Lau told SunBiz that the current trough valuation may spring a surprise on the upside as the previously suspended projects could come back on stream, albeit on reduced contract value as the government seeks to be prudent in development spending.
MIDF Research analyst Muhammad Danial Abd Razak said that despite the cancellation and deferment of mega projects such as the high-speed rail (HSR) and the ECRL, the anticipated drag to the sector was less than initially thought.
While reviews of certain mega projects have put a strain on sentiment,
Muhammad Danial believes that the sector’s long-term outlook will be driven by sustainable measures.
“We are encouraged to see that meaningful allocations were secured, giving reasonable attention to residential, non-residential, social amenities and infrastructure developments.
“We expect construction works mainly for Mass Rapid Transit 2 (MRT2), Light Rail Transit 3 (LRT3) and Pan Borneo Highway (PBH) to pick up pace soon following the green light granted by the government to complete the projects,” he added.
Additionally, he said, in reference to Budget 2019, the amount of development expenditure spent at about RM50 billion was significant, which denotes positive sign on the near-term developments for the construction sector.
Despite significant cost reductions for both MRT2 and LRT3, the combined contract amount was still significant at RM41.5 billion, providing earnings visibility beyond calendar year 2020, he added.
Moving forward, Muhammad Danial sees the recovery in investors’ sentiment will be heavily weighted by the development potential in East Malaysia, but the pending implementation of mega projects especially in Sarawak will likely provide a boost on the state’s construction outlook.
The potential rollout of Sarawak infrastructure packages includes the coastal road, the second trunk road and the state’s water grid projects worth RM9.1 billion.
“Despite the near-term directional swing, we see the headroom is still ample for the sector to grow. This was mainly a recognition of stable development expenditure allocation in Budget 2019, continuation of mega projects such as LRT3, MRT2 and PBH, and pending implementation of infrastructure projects,” he noted.
PETALING JAYA: AmInvestment Bank opines that Perodua could achieve average sales of 2,100 units a month for the brand new Aruz model, but it may cannibalise sales of the Alza to a minor extent.
“We believe the sales target for the Aruz is ambitious but not impossible. Sales of 2,500 a month would reap about 42% of the current average of 5,900 a month in total SUV sales, and is above the average of 1,900 a month seen by the current market leader in the segment, Honda.
“The Aruz is supported by the timing of its entry and market position as the cheapest option in a far less saturated segment of the SUV market,“ the research house said in a note last Friday.
The Aruz is now open for booking with prices between RM72,200 and RM77,200.
The Alza is a seven-seater MPV with a captive market of about 2,000 units a month, although it is offered at a lower price range of RM52,000 to RM63,000.
AmInvestment Bank said the announcement of the Aruz last week is an opportunistic move by Perodua and matches the expectation of an end-January/early-February launch. Perodua will be able to capitalise on the Chinese New Year period and potentially divert some attention from other SUVs including the Proton X70. However, it noted that the 1.8L X70 occupies a different segment and is priced higher (RM99,800–RM123,800).
“The Aruz continues Perodua’s emphasis on affordability and value. It will be the cheapest option in its segment and is bolstered by an energy-efficient vehicle rating based on a fuel consumption of 15.6km a litre. We note that the Aruz is Perodua’s best attempt at streamlining a model.
“It is only available on two variants (versus four to six variants on Perodua’s existing models), on a single engine size and transmission type (auto). We believe this will serve to pivot sales towards the higher variant, which costs RM5,000 or 7% more,“ it added.
AmInvestment Bank retained its projection of 3% volume growth to 233,000 units for Perodua in 2019, with the Aruz accounting for about 11% of total sales.
“Volume would still be anchored to the Myvi and Axia, while the Aruz will serve to boost margins. Perodua looks to close a bumper year in 2018 during which it rode on the new Myvi and took efforts to fully capitalise on the tax holiday.”
It reiterated that the key beneficiaries to Perodua will be MBM Resources Bhd and Pecca Group Bhd.
PUTRAJAYA: Malaysia’s trade surplus declined 24% year-on-year to RM7.6 billion in November 2018 as export growth moderated to 1.6% while imports expanded 5%, according to the Statistics Department.
Exports and imports stood at RM84.8 billion and RM77.2 billion, respectively.
Total trade, which was valued at RM162.0 billion, increased 3.2% from a year ago.
Export growth was due to higher exports to Taiwan (+RM1.1 billion), Vietnam (+RM938.5 million), Hong Kong (+RM876.8 million), Singapore (+RM872.2 million) and China (+RM435.3 million).
The main products that contributed to the expansion in exports were refined petroleum products (+RM2.2 billion), liquefied natural gas (LNG) (+RM953.0 million) and crude petroleum (+RM430.4 million).
However, a decline was recorded for palm oil and palm oil-based products (-RM1.3 billion), electrical & electronic products (-RM528.2 million), timber and timber-based products (-RM146.8 million), and natural rubber (-RM8.5 million).
Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said re-exports was valued at RM15.9 billion registering an increase of 24.5% and accounted for 18.7% of total exports. Domestic exports declined 2.6% to RM68.9 billion.
Meanwhile, higher imports were mainly attributed to consumption goods (+RM59.0 million) and capital goods (+RM39.6 million). However, imports of intermediate goods declined RM137.5 million.
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