KUALA LUMPUR: Sarawak stocks are expected to grab the limelight next year as the state gears up for the 11th state elections, says AmInvestment Bank.
Analyst Thomas Soon said the current speculation was that the state polls might be held earliest in February and latest by May. It could also be held within 60 days after the expiry of the term of the current government on June 20 next year.
“The ruling Barisan Nasional is largely expected to retain control of the now-expanded 82-seat assembly,” he said.
Sarawak-based companies under AmInvestment’s coverage include construction companies Cahya Mata Sarawak (CMS), Sarawak Cable Bhd, Hock Seng Lee Bhd (HSL), KKB Engineering Bhd and Naim Holdings. Others include timber stocks Jaya Tiasa Holdings Bhd and Ta Ann as well as Bintulu Port.
Sarawak recently tabled an election-driven state budget for next year to the tune of RM8.04 billion, which is 26.5 per cent more than this year. It includes a RM5.97 billion allocation for development — roads, supply of treated water and for the agriculture sector. Rural development will receive a higher allocation amounting to RM2.65 billion, a 13 per cent increase from this year. The state now boasts of a reserve totalling RM27 billion.
“Apart from the state budget, Sarawak is also expected to benefit hugely from the construction of the federal government-funded RM27 billion Pan Borneo Highway,” Soon said.
The 1,090km-long Sarawak section, to be built at a cost of about RM15 billion, will be implemented through the project delivery partner Lebuhraya Borneo Utara Sdn Bhd and is expected to be completed by early 2023.
“We understand that a total of 10 packages will be rolled out in phases (and) between 12 and 15 consortia involving local and Peninsula participation have been pre-qualified,” said Soon, adding that the state government requires local entities to have a 70 per cent equity lead in each of the consortia with partners from the Peninsula.
Construction of the highway started in March with the initial package involving a 43km route, with a total contract value of RM638 million. The second package involves a 33km route, launched on September 1 at a contract value of RM580 million.
“We believe the other packages will be rolled out next month. The highway is expected to spur developments within and outside of the Sarawak Corridor of Renewable Energy.
“With that, CMS, HSL, KKB and Naim are all expected to be potential direct and indirect beneficiaries of the Pan Borneo Highway project,” he added.
Sarawak stocks in focus
HOCK Seng Lee Bhd (HSL) (Buy, Fair Value: RM2.30/share) is expected to leverage on its marine engineering expertise to secure works for the Pan Borneo Highway, apart from jobs within the Score regions of Tanjung Manis, Mukah and Samalaju. HSL is also the frontrunner to secure the remaining phases of the Kuching centralised wastewater management system, which could have a remaining contract value of about RM3.5 billion.
KKB Engineering (Buy, Fair Value: RM2.00/share) is one of AmInvestment’s top picks for its dominant position in Sarawak’s steel fabrication industry.
“We continue to expect its associate Oceanmight to win jobs in the fabrication of oil and gas structures. We understand that it is also one of the local parties pursuing opportunities in the Pan Borneo Highway. This is positive, given the lack of jobs in its conventional activities in steel engineering activities. It will benefit from the state’s annual expenditure in rural development,” said AmInvestment Bank analyst Thomas Soon.
Sarawak Cable (Buy, Fair Value: RM2.20/share) is the leading integrated transmission line and power cable player in Malaysia. It is set to achieve record earnings this year on the back of an outstanding order book of RM1.5 billion. Outstanding jobs include the 500kV backbone line and the Pengerang and Balingian projects. Next March, its 10MW hydro plant in Sumatra, Indonesia, will come online and provide recurring income. The firm is also in good position to secure new jobs, such as the underground cable package in Pengerang. The 500kV line package three from TNB is worth about RM900 million annually.
Jaya Tiasa (Fair Value: RM1.92/share) and Ta Ann (Fair Value: RM5.28/share): For non-construction related firms, AmInvestment is overweight on the timber sector and have “buy” for Jaya Tiasa and Ta Ann, given that they have been cleared in the Malaysian Anti-Corruption Commission investigations into illegal logging.
Bintulu Port (Hold, Fair Value: RM7.00/share), “We remain neutral due to the uncertainty over the timing of its proposed tariff restructuring and the quantum. We believe the current share price has also priced in a potential six-month delay in the completion of the Samalaju Port,” said AmInvestment’s Soon.