S’wak play continues, stocks gain further

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KUALA LUMPUR: Sarawak-themed stocks gained further on Jan 12, with some reaching new 52-week highs, amid news of prominent investment flow and activity in the country’s largest state.

Shares of Naim Holdings Bhd, Hock Seng Lee Bhd (HSL), KKB Engineering Bhd and Cahya Mata Sarawak Bhd (CMSB) reached fresh 52-week highs.

Naim was one of the top gainers, closing at RM3.31, up 33 sen or 11.07% for a year-to-date gain of 12.6%.

HSL shares ended 12 sen or 10.6% higher at RM1.25 while CMSB gained 12 sen or 6.7% to RM1.90. KKB also rose 12 sen or 3.75% to RM3.32 while Bintulu Port Holdings Bhd was unchanged at RM6.22.

On Monday, State Grid Corp of China (SGCC) and 1Malaysia Development Bhd (1MDB) announced a tie-up to invest in the Sarawak Corridor of Renewal Energy (Score) to the tune of US$11 billion (RM36.74 billion) in economic value.

In a note on Jan 12, OSK Research said although details were pending, the US$11 billion would cover the cost of the reported projects — one RM10 billion aluminium smelter and three power plants in Murum (RM3.2 billion to RM6.4 billion), Baram (RM3.4 billion to RM6.8 billion) and Baleh (RM4.8 billion to RM9.5 billion).

“The planned investments will spur a significant increase in the planned projects in Score, which now total US$24 billion,” OSK said.

However, it is unclear whether the 1MDB-SGCC tie-up will pave the way for a third smelter in the state after those by the Rio Tinto-CMSB joint venture, and MCC Corporation Bhd.

“We are uncertain of the current status given this latest JV between 1MDB and SGCC. It could be a rival smelter or an expansion of consortium members,” OSK added.

Regardless, it said such investments would definitely benefit Sarawakian construction players, port operators and power cable producers.

The house expects more construction jobs to be rolled out closer to state elections, slated for end-2010 or early 2011.

OSK said its favourite pick in the construction sector was Naim, given its cheaper valuation versus its peers. Naim is currently trading at 11.4 times price-to-earnings (PE) ratio.

Since November, the counter has had three buys, and one hold recommendation with a consensus target price (TP) of RM3.81.

OSK has a trading buy recommendation on HSL, with a target price of RM1.25. The counter is trading at 13.8 times and has had three buy and one trading buy calls since November with a TP consensus of RM1.25.

The house also has a buy call on Leader Universal Holdings Bhd  (TP: 93 sen) as it believes the company would benefit from the award of wire and cable jobs in Score. Leader rose 6.5 sen or 8.3% to 84.5 sen on Jan 12, with 4.4 million shares traded.

OSK noted that Leader’s exposure to Score was both direct and indirect — via its plants in the peninsula as well as its Sarawak-based 35%-associate company Universal Cable (Sarawak) Bhd.

OSK is “positive” about Bintulu Port as it expects the company to be the direct beneficiary if any projects to be located near Samalaju Industrial Park, which is identified as one of the three key growth nodes of Score.

“We see this as a possibility given its decades of experience as a multi-purpose port operator as well as the backing of the Sarawak government as its major shareholder.

“However, regardless of location, indirectly, Bintulu Port is poised to ride on heightening economic activity in the overall Score development projects,” the research house said. It has a neutral call on the counter with a TP of RM6.72.