CONSTRUCTION---NEUTRAL from ECM

4th – 10th Oct: Construction index inching up

· Construction index creeps upwards
The FBM KLCI Index and KL Construction Index both gained 1% to end at 1481.41 points and 265.85 points respectively last week. EPF accumulated 0.17% or 3.7m shares in Gamuda amid a 4% decline in share price. However, major institutional funds sold a combined 17m shares, or 1.3% in IJM as prices climbed 2.1%. Sunway Holding’s share price continued its strong performance, ending 3.6% higher for the week.

· Notable construction news
Circulating news of an RM15.6bn bid by MMC Corporation to take over UEM Group has created a flurry of excitement early last week. It was reported that MMC Corp is proposing to lead a consortium involving the Employees Provident Fund (EPF) and Permodalan Nasional Bhd (PNB) to acquire UEM via a special purpose vehicle, in which MMC would have a 40% stake, while EPF and PNB would hold 30% each. It was later confirmed that a preliminary proposal to take over UEM Group had been submitted to the government by MMC Corp. While the quantum was not divulged, MMC has revealed that they have not approached either EPF or PNB to be their partners. At Kumpulan Jetson, the Naza Group’s SM Nasarudin and SM Faliq have resigned from their executive positions, a further indication of their rumoured intentions of disposing their 33.2% stake in the company. However, both will remain on Jetson’s board as non-executive, nonindependent directors. Another executive director, Chow Chee Kin, is also
expected to be redesignated. After months of waiting, Mudajaya has finally seen development on the Securities Commission’s (SC) queries into the affairs related to its power plant project in Chhattisgarh, India. The SC remanded the company for ‘round-tripping’ practices and issued a ‘Caution and Reminder’ to observe its disclosure obligations. Concurrently, Mudajaya also announced the signing of a memorandum of understanding with the government of Laos
for a hydroelectric power project.

· Contracts awarded
WCT won the largest contract last week after securing the RM486m buildoperate- transfer concession for the Integrated Complex at the new Low Cost Carrier Terminal at Sepang.

· Maintain Neutral
We are turning positive on Gamuda in view of expected contract news flow for the MRT project. We note however, that allocation for physical infrastructure is lower under the 10MP. Although set off by numerous projects to be undertaken on a public private partnership (PPP) model, its positive impact is stock specific as certain companies may find difficulty securing financing under a PPP model. Our top pick is Sunway Holdings which is trading at undemanding forward PE of 8.7 times.
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