KUALA LUMPUR: UOB Kay Hian Malaysia Research expects the Finance Minister’s decision to indefinitely defer talks with tolled expressway concessionaires should spark off a relief rally in the oversold construction stocks.
It said on Monday the surprising 14th general election (GE14) results became a black swan event for the mid-cap and mega project-centric alpha picks, which plunged by a simple average of -23.7% vs FBM KLCI’s -6.9% and FBM 70’s -6.5%.
“Nevertheless, the Finance Minister’s decision to indefinitely defer talks with tolled expressway concessionaires should ignite a relief rally in the oversold construction sector. To capitalise on this, we add Gamuda and IJM for our June picks while we retain May’s picks.
May was a bloodbath for our mid-cap and mega project-centric alpha picks which delivered a simple average loss of -23.7%, although our two oil and gas stock picks surpassed FBM KLCI’s -6.9% and FBM 70’s -0.65% returns.
Following Pakatan Harapan’s triumph in GE14, construction related stocks were rocked by: a) cancellation (High Speed Rail and Mass Rapid Transit 3) or review (East Coast Rail Link) mega infra projects, b) concerns that tolled expressway concessionaires would be forced to stop tolling and be well under-compensated, c) Cahya Mata Sarawak limit down due to a non-government organisation’s call to investigate the controlling shareholder for graft.
UOB Kay Hian Research said a news report, had in an interview with Finance Minister Lim Guan Eng, revealed that the federal government will: a) defer discussing with tolled expressway concessionaires (indefinitely) until federal finances improve, b) honour government contracts, c) review and renegotiate unusual public-private partnership (PPP) projects, and d) possibly revisit/revive HSR and Bandar Malaysia in the future.
“This should allay undue fears that the tolled expressway concessionaires would be forced to unfairly compensated to stop tolling, and allow construction stocks to claw back some of May’s massive losses – the KLCI construction index fell more than 40%.
“We add Gamuda and IJM to our alpha picks and retain our May’s picks – Bumi Armada, Cahya Mata Sarawak (CMS), Gabungan AQRS, Serba Dinamik and Yong Tai. We may review our picks post the anticipated relief rally,” it said.
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