Budget 2010 beneficiaries

KUALA LUMPUR: While analysts feel that Budget 2010 unveiled last Friday may be market neutral, the sectors that will benefit from the government proposals are likely to see some trading interest as investors sift through incentives and as more details emerge.

Budget 2010 focuses significantly on accelerating the progress of various economic corridors in the country as well as other infrastructure developments in Sabah and Sarawak. Apart from expediting the country’s broadband aspirations, the budget also promotes green building and TECHNOLOGY [].

As the country gears up to becoming a high-income nation, technology-based companies will be encouraged by the budget’s emphasis on invigorating research and development and commercialisation effort, including the development of green technology.

Various measures to improve the country’s education standard and strengthen the social safety net may also create new market segments in the services sector.

A number of industry players may benefit from the budget initiatives. Below are brief takes on some of such companies, which are analysts’ favourite picks, not in any particular order.

TELEKOM MALAYSIA BHD []

TM will continue with the rollout of its RM11.3 billion broadband project, with the 10mbps services in KL and Selangor to start March 2010.

Other incentives include personal tax relief for persons who have subscription fee up to RM500 a year from 2010 to 2012. Under Budget 2010, TM will also be able to offer 100,000 local university students a broadband package for RM50 per month for two years.

TM ended at RM3.04 last Friday, translating into a gain of 32.98% year-to-date (YTD).

The telco stock is trading at a price-to-earnings (PE) ratio of 36.17 times. According to Bloomberg data since May, analysts have had two buy calls on the stock, two hold, two underperform, two sell and one neutral, with target prices (TP) ranging between RM2.14 and RM3.98.

UEM LAND HOLDINGS BHD []

UEM Land Holdings, the master developer of Nusajaya, is expected to benefit from the budget as the government aims to attract local and foreign talents as well as intensify the development of Iskandar Malaysia, via an innovative and radical tax incentive.

The government proposes income tax of Malaysians and foreign knowledge workers residing and working in Iskandar Malaysia be imposed at a rate of 15% compared with 26% for the rest of the country.

UEM Land closed at RM1.73 last Friday and has gained 223.36% YTD. It is trading at a PE of 230.67 times versus an industry average of 23.56 times. Its assets are mostly its land holding. Since June, analysts have had two buy calls and two sell, with TPs ranging between 95 sen and RM2.40.

HOCK SENG LEE BHD []

HSL is expected to benefit from the RM9 billion to finance infrastructure projects to be rolled out. Of the amount, RM4.7 billion is allocated for road and bridge projects as well as RM2.6 billion for water supply and sewerage services.

HSL is a favourite pick, given the home turf advantage in Sarawak, which is extending its network of roads and irrigation system.

HSL last traded at RM1.15, translating into a YTD gain of 150%. It is trading at a PE of 14.23 times versus industry average PE of 27.56 times. Since August, analysts have had three buys, two holds and one neutral call, with TPs of between 97 sen and RM1.40.

CAHYA MATA SARAWAK BHD []

CMS, also another Sarawak play, is one of the major beneficiaries of the budget’s allocation of RM3.5 billion in 2010 for infrastructure and basic amenities for regional corridors, including Sarawak Corridor Of Renewal Energy (SCORE).

The state-run company is teaming up with mining giant RioTinto Alcan to build an aluminium smelting plant at the epicentre of SCORE, Similajau.

CMS shares closed at RM1.76 last Friday, gaining 54% YTD. The stock is trading at a PE of 7.54 times versus industry average of 16.96 times. Since August, CIMB Research and Standard & Poors have had a hold stance on the stock, with TPs of RM1.63 and RM1.70, respectively.

PUTRAJAYA PERDANA BHD []

Putrajaya Perdana, a leader in “green building”, is expected to benefit from the initiative to develop Putrajaya and Cyberjaya as pioneer townships in green technology.

Additionally, builder owners obtaining GBI (Green Building Index) Certificates from Oct 24, 2009 till Dec 31, 2014, will be given income tax exemption equivalent to the additional capital expenditure in obtaining such certificates. The stock last traded at RM3.88, translating into a decline of 20.82% YTD.

The stock is trading at a PE of 19.53 times versus 17.36 times industry average. No analyst coverage is available.

MALAYSIAN RESOURCES CORP []oration Bhd

The government proposes to jointly develop or sell its land to government-linked companies. MRCB is expected to benefit from the government’s release of land. The government is already in talks to develop land in Ampang and Jalan Cochrane.

Other areas identified include Jalan Stonor, Bukit Ledang, Sungai Buloh and Brickfields, which is located adjacent to MRCB’s jewel, KL Sentral.

MRCB last traded at RM1.35 and has gained 91.5% YTD.

It is trading at a PE of 28.2 times versus the industry average of 18.56 times. Since May, analysts have six buy calls, two trading buy and two hold, with TPs between 60 sen and RM2.

WCT BHD [] and MUDAJAYA GROUP BHD []

The Budget also entailed initiatives that boost the CONSTRUCTION [] industry. Analysts’ favourite picks in this sector include Mudajaya Group and WCT Bhd.

“We like Mudajaya and WCT as they are both bidding for mega projects locally and they have ample foreign exposure,” said OSK Research head of research Chris Eng, adding that despite attractive returns, the two stocks were still cheaper compared with their bigger peers.

Mudajaya has gained 216% YTD at its close of RM3.58 last Friday.

The counter is trading at a PE of 22.64 times versus the industry average of 18.22 times. Since August, analysts have had pegged the stock with four buy calls, with TPs between RM4.10 and RM6.65.

WCT last traded at RM2.68, translating into a 76.3% gain YTD. It is trading at a PE of 25.45 times versus the industry average of 18.22 times. Since May, analysts have had initiatied five buys, one fully valued, and one hold, with TPs between RM1.80 and RM3.90.

MAH SING GROUP BHD []

Mah Sing is also expected to benefit from the Budget 2010’s incentive to develop Putrajaya and Cyberjaya into more “lively and vibrant” townships, with efforts intensified to increase business, commercial and recreational activities.

The developer in August purchased a 46.1ha freehold land in Cyberjaya that would spearhead its expansion into the southern growth corridor.

Mah Sing ended at RM1.82 last Friday. The stock gained 13.75% YTD and is trading at a 14.38 times PE versus industry’s average of 11.54 times. Since August, analysts have had seven buy calls and two underperform on the counter, with target prices between RM1.50 and RM2.69.

AHMAD ZAKI RESOURCES BHD []

An analyst believes that AZRB is a contender in bidding for the hospital jobs stipulated under the Budget 2010.

The government proposes to spend RM14.8 billion next year to manage, build and upgrade hospitals and clinics.

AZRB closed at 98 sen last Friday, translating into a gain of 113% YTD.

The counter is trading at 14.08 times PE versus 14.27 times industry average.

Since August, S&P has had a hold call on the counter with a target price of 92 sen and OSK has a “trading buy” with RM1.14 target price.

KURNIA ASIA BHD []

Kurnia Asia will benefit from the proposed structure of motor insurance scheme.

It is proposed that premiums for the insurance protection scheme be determined at an “appropriate” level, which commensurates with the level of protection.

OSK Research’s head Chris Eng opines shifting to a risk-based premium will augur well for the country’s largest motor insurer that is operating on a risk-based cost. Kurnia commands over 18% of the current motor insurance market share.

“The management indicates that premium on average should rise,” Eng said.

Eng said OSK will initiate coverage on the counter soon. Kurnia last traded at 75.5 sen, translating into a 128% YTD.

The stock is trading at 19.71 times PE versus 47.66 times industry average.

Since August, analysts have had two buy calls, one trading buy and one sell call on the counter, with TPs ranging between 26 sen and 87 sen.

ETI TECH CORPORATION BHD []

ETI Tech, which prides itself as a green technology company, is seen as a beneficiary of the RM1.5 billion allocation for green technology.

It has been reported that ETI Tech is seeking financial support from the government to develop the renewable energy application.

The Edge Financial Daily recently reported that ETI Tech was expanding its Kulim facility.

ETI Tech shares ended last week at 75.5 sen, gaining 21.2% YTD. It is trading at a PE of 25.62 times versus 15.43 industry average. Since July, the counter has had two sell calls, with TPs between 50 sen and 61 sen.