Construction sector
Maintain overweight. The Malaysian Reserve reported that Selangor Menteri Besar Mohamed Azmin Ali said the state government will scrutinise all federal infrastructure proposals in Selangor, following the disagreement over the water deals.

As at December 2014, the Selangor government has yet to begin executing 494, or 64.7%, of the 763 development projects approved under the 10th Malaysia Plan (10MP). 

Sources said that the state government may also call off the Damansara-Shah Alam Elevated Expressway (Dash) highway project, amid pressure from anti-Dash lobbyists.

This news is unexpected, but we believe the negative impact on the construction and materials sector and stocks under our coverage is likely to be minimal.

Seven major highway jobs under the 10MP worth RM21 billion make up less than 15% of the RM150 billion overall incoming jobs. 

From our analysis, we conclude that major highways that have been approved and awarded (East Klang Valley Expressway, Duta-Ulu Kelang Expressway extension and West Coast Expressway) should be safe, but Dash, Sungai Besi-Ulu Kelang Expressway and Serdang-Kinrara-Putrajaya Expressway could be under heavy scrutiny, going by the cancellation of Kinrara-Damansara Expressway recently. 

The good news is that tender books of most contractors under our coverage are not heavily exposed to new highways, except for Mudajaya Group Bhd.

We would not interpret this news as a major setback at this juncture, and still prefer the sector’s big cap and liquid stocks with strong order book growth potential like Gamuda Bhd. 

We also continue to prefer Muhibbah Engineering (M) Bhd — small/middle-cap stock with strong themes driven by oil and gas or marine-related infrastructure that have received Petroliam Nasional Bhd’ final investment decision. — CIMB Investment Bank Bhd, March 13

This article first appeared in The Edge Financial Daily, on March 16, 2015.