This article first appeared in The Edge Financial Daily on April 23, 2019
KUALA LUMPUR: Bursa Malaysia’s Construction Index bucked the sluggish benchmark index to climb 8.15% or 16.52 points to reach an eight-month high of 219.20 points yesterday, the first trading day after the government announced last Friday that the Bandar Malaysia project would be reinstated.
The announcement came exactly a week after the government said on April 12 it would continue with the East Coast Rail Link (ECRL), at a lower cost of RM44 billion compared with its original cost of RM65.5 billion.
Leading the surge in the sector was Ekovest Bhd, which is linked to Bandar Malaysia’s master developer, IWH-CREC Sdn Bhd, via common shareholder Tan Sri Lim Kang Hoo.
Ekovest shares shot up to a one-year high of 97 sen after climbing 30 sen or 44.78% to hit limit up yesterday. It was Bursa’s most actively traded counter of the day, with 282.03 million shares done. Its share price has more than doubled year to date.
Also active in line with the Bandar Malaysia theme was Iskandar Waterfront City Bhd (IWCity), which is also controlled by Lim and a subsidiary of IWH. Shares in the developer rose 30 sen or 29.41% to RM1.32, having tripled since the start of the year.
Other notable gainers were Gadang Holdings Bhd, which rose 23 sen or 32.17%, and Fajarbaru Builder Group Bhd, which climbed 11 sen or 27.16% (see table). Out of 49 stocks on the Kuala Lumpur Construction Index, 40 closed higher yesterday, while only two ended the day in the red.
Other big names in the construction sector that closed higher include Gamuda Bhd (up 27 sen or 8.77% to RM3.35), IJM Corp Bhd (up nine sen or 4.09% to RM2.29) and Malaysian Resources Corp Bhd (up 10 sen or 10.42% to RM1.06).
According to Rakuten Trade head of research Kenny Yee, the rally in construction stocks is not just because of the revival of Bandar Malaysia. “Bandar Malaysia does play a part but most importantly, it is the positive newsflow on projects of late that has propped up the construction sector,” he told The Edge Financial Daily.
Although the ECRL is now going to be cheaper by 32.8% or RM21.5 billion, the project’s main contractor China Communications Construction Co Ltd has agreed — under the new supplementary agreement signed with Putrajaya on April 12 — to ensure 40% of the civil works are awarded to local contractors.
While the twin revivals of the ECRL and Bandar Malaysia have given a shot in the arm to construction stocks, they do not seem to have generated strong buying interest among constituents of the benchmark FBM KLCI, which closed flattish yesterday.
Nevertheless, they appear to have acted as a catalyst for the wider market, as market breadth was positive across Bursa Malaysia yesterday, with 544 gainers outpacing 326 decliners. Trading volume swelled to 4.77 billion shares, with a significant RM3.18 billion value of shares crossed.
Interestingly, PLS Plantations Bhd, another company which Lim controls, also climbed. The loss-making oil palm planter, which is diversifying into the durian plantation business, jumped 28 sen or 29.23% yesterday to close at RM1.26.
Other gainers included building materials players like cement maker Lafarge Malaysia Bhd, which gained 13.3% to close at RM2.64. The stock saw only tepid interest last week despite news of the ECRL’s continuation, as analysts opined that the railway alone would add only a small boost to demand for its products. Meanwhile, steelmakers like Ann Joo Resources Bhd, Mycron Steel Bhd, Malaysia Steel Works (KL) Bhd and Southern Steel Bhd also gained.
According to AmInvestment Bank’s research team yesterday, demand for building materials will depend on how aggressively Bandar Malaysia rolls out its launches.
“We are more inclined to want to look beyond the sectors in our analysis for the revival of Bandar Malaysia. We believe investors should instead focus on how the improved Malaysia-China ties could help bring down the market risk premium, resulting in multiple expansion for the market,” it said in a note.
“We are mindful that not many local contractors have worked with Chinese main contractors before, and if their experience in time will be a fruitful one,” AmInvestment Bank said.
As to whether the rejuvenation of the mega infrastructure project signals a potential comeback of the Kuala Lumpur-Singapore high-speed rail (HSR), where the last agreed alignment included a stop at Bandar Malaysia, views were mixed.
While AllianceDBS is positive on the HSR’s resuscitation, CIMB Research does not think Bandar Malaysia’s reinstatement suggests a similar fate for the HSR, which is still pending a review, with a decision due on May 2020.
“While the return of Bandar Malaysia is a positive surprise in terms of potentially catalysing new construction works, potential beneficiaries are likely limited to smaller/medium-sized building contractors for which tenders could be competitive,” CIMB Research added in a note yesterday.