Get ready for pump priming
Most obvious beneficiary of government pump priming
The construction sector is the most obvious beneficiary of pump-priming
in 2009, as the government works to avoid a looming economic
contraction. The government has budgeted MYR60.7b (+18.3% y-y) of
gross development expenditure for 2009 (including its first MYR7b
stimulus package). A second and more ‘profound’ stimulus will be
announced on 10 March. Key projects to look out for include: MYR35b
worth of public transportation projects, MYR8b-9b on water infrastructure
projects, and several dams in Sarawak worth some MYR23b. Our
channel checks indicated that contractors expect award of works as
early as March/April to as late as 4Q09 after a lull in 2008.
Two biggest overhang factors significantly diminished
The two biggest factors that caused a de-rating of the construction
sector in 2008 have significantly diminished – political risk and high
building-material costs. Political risks have significantly diminished as
the succession plan for the new Prime Minister has been put into place.
Current Deputy Prime Minister Najib Razak is likely to be the next Prime
Minister of Malaysia, and is believed to favour large-scale spending. We
see construction margin expansion on the back of the collapse in
building-material prices from the peak in June 2008.
Order flow to drive outperformance
While short-term earnings growth is likely to remain flat, historically,
construction order flow drives share-price performance. We expect it to
be no different this time. We also see little downside risk as most
construction stocks are already trading at almost trough valuations, after
falling 51-75% over the last 12 months. We upgrade the sector to
OVERWEIGHT from Neutral. Reflecting our optimism, we now have four
BUYs for the sector following our IJM upgrade. Downside risk mitigated
by healthy balance sheets, and reasonable valuations. Other BUYs
include Gamuda, WCT and Loh & Loh (a water-engineering specialist).
We believe IJM would be a short-term out-performer on favourable news
flow, while Gamuda is our preferred long-term BUY given its earnings
visibility and superior skill sets for heavy engineering. Our price targets
are based on SoTP, except for Loh & Loh (P/E based).

Contents
Get ready for pump priming ........................................................................................... 3
Most obvious beneficiary of government pump priming 3
What projects, who benefits? 6
Sector overhang negative are now gone..................................................................... 10
Order flow to drive out-performance ............................................................................ 15
Construction spending ................................................................................................. 22
Company updates........................................................................................................ 25
Gamuda 26
IJM Corp 30
Loh & Loh Corp 35
WCT Bhd 39