JP Morgan maintains Overweight on IJM, WCT, Neutral on Gamuda

KUALA LUMPUR: JP Morgan Asia Pacific Equity Research maintains its overweight ratings on IJM Corp Bhd and WCT Corp Bhd and its neutral rating on GAMUDA BHD.

It said Malaysian CONSTRUCTION stocks have been beaten down on heightened risk aversion following the Middle east and North Africa (MENA) political turmoil.

“Gamuda, IJM and WCT are down 4.8%, 1.8%, and 4.3% YTD, in our view providing a good buying opportunity for IJM, our top pick in the construction space, and for WCT in the mid-cap space, as we think valuations have become more attractive, and they are trading well within mean and 1SD (one standard deviation),” it said in a research note issued on Friday, March 4.

In its analysis, JP Morgan Research said Gamuda’s exposure to MENA was small, at 1.7% of total outstanding construction order book, IJM’s is 2%, while WCT’s is the largest, at 42%.

The bulk of WCT’s exposure is to Qatar, where WCT’s management believes the risks are lower given that Qatar has the highest GNP per capita in the world.

Qatar’s proven natural gas reserves stood at approximately 896 trillion cubic feet as of Jan 1, 2011, and it holds almost 14% of total world natural gas reserves, the world’s third largest.

WCT’s major project in Qatar, the RM1.36 billion ministerial building (37% of outstanding order book) is buffered by advance payments, while all progress billings are on a monthly basis, mitigating risks further.

Gamuda’s share price was down 2.5% year-to-date in market capitalisation against a 0.9% sum of the parts (SoTP) exposure from MENA, IJM’s market capitalisation fell 7.3% against no SoTP exposure from MENA, while WCT fell 6.3% against SoTP exposure of 0.9% from Bahrain and 19.9% from Qatar.

“We remain positive on the construction sector, supported by rollout of projects under the Economic Transformation Progamme (ETP), and RM67 billion private-public partnership (PPP) projects under the 10th Malaysia Plan.

“Recent newsflow has turned even more positive for the sector, with the appointment of Gamuda-MMC as the project delivery partner for the RM36 billion mass rapid transit (MRT) project, slated to commence in July this year; and the letter of intent given to MRCB for the close to RM18 billion River of Life project, both part of the ETP.

“We expect positive construction order flows will be the driver of share price performance. Another project due for award soon is the second package of the RM7 billion LRT extension project, for which tenders will close by April,” it said.