May 7, 2012

IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.

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REGION AL

MALAYSIA

SINGAPORE

INDONESIA

THAILAND

PHILIPPINES

CHINA, HONG KONG

CONSTRUCTION SHORT TERM (3 MTH) LONG TERM

Conviction

More miles to go for rail and highway jobs The local construction scene remains buoyant as a slew of rail and highway projects are set to be awarded in the medium term. A couple of other projects could also come onstream if they pass feasibility tests and if political factors are favourable.

Figure 1: Major transport infra jobs

Projects Total cost/est. Status

MRT SBK line RM20bn Awards in progress

MRT 2 (circle line) & MRT 3 c.RM40bn Detailed feasibility study in 2H12

West Coast Expressway (WCE) RM7.1bn Pending signing of CA

Suke - highway RM1.6-2.4bn Under study

Dash - highway RM1-1.6bn Under study

Kidex- highway RM2.2bn Under study

High Speed Rail (KL-S'pore) RM30bn Detailed feasibility study in 2H12 SOURCES: CIMB, COMPANY REPORTS

Job awards will continue to be led by the MRT SBK line packages. We expect newsflow to be good in 2H12. This continues to anchor our Trading Buy stance on the sector, which is not an Overweight because of political risk. Gamuda and IJM Corp are still our top picks.

Transport infrastructure goes beyond KVMRT In this report, we focus on the outlook for large-scale rail and highway projects and show that traffic alleviation/dispersal initiatives under the 10MP and ETP go beyond the KVMRT. Working on either the cost quoted in the press or the benchmark cost/km, we estimate the highway and rail jobs to be worth c.RM95bn in total. The rollout of job awards will focus on the MRT SBK line over the next few months.

Our checks indicate that three urban highways Sg. Besi-Ulu Kelang Expressway (Suke), Damansara-Shah Alam Highway (Dash) and Kinrara-Damansara Expressway (Kidex) are already at the planning stage.

Indications of timing Feasibility studies for MRT 2 & 3 and the high speed rail (HSR) will be in full swing in 2H12 and decisions are likely by year-end. MRT Corp will award the remaining elevated packages for the SBK line by early 3Q12. Driven by the MRT, job awards in 2012 could total RM20bn-25bn compared to RM8.7bn in 2010 and RM8.1bn last year. Of the total RM13.2bn awards YTD, 81% or RM10.7bn was for rail-related works.

Potential winners Potential winners of the remaining packages of the elevated portion of the MRT SBK line are the 28 prequalifiers, 13 of which are listed contractors. Among the 13, we gather that TRC Synergy, Mudajaya, Sunway, Fajarbaru, Gadang, WCT and Loh & Loh stand a good chance of bagging the viaduct and station packages. Key winners of the WCE remain IJM Corp and KEuro. For Kidex, Bina Puri and Mudajaya were reportedly among the contenders. We continue to believe that the MMC-Gamuda JV has a good chance of emerging as the main winner of MRT 2 & 3.

Notes from the Field

Sharizan Rosely

T (60) 3 20849864 E sharizan.rosely@cimb.com

The PDP will speed up

the award of the remaining elevated packages of MRT SBK line from Oct-12 to early 3Q12.

A source in PDP

Sources: CIMB. COMPANY REPORTS

Highlighted Companies

IJM Corp

IJM Corp is among the main beneficiaries of large-scale projects including the RM7.1bn West Coast Expressway (WCE), RM1bn extension of New Pantai Expressway (NPE) and KVMRT. It could still win another MRT elevated package.

Gamuda

The group is the winner of the RM8.3bn underground works for MRT SBK line and the frontrunner for the RM8bn Gemas-JB double tracking project. It could be one of the beneficiaries of the HSR given its rail expertise.

Mudajaya

Mudajaya has access capacity to undertake large scale highway jobs. The group is vying for two subcontract packages from WCE, and was reportedly one of the frontrunners of another urban elevated highway worth RM2.2bn.

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KEY CHARTS

Major incoming Klang Valley jobs to focus on transport infra highways and rail We estimate that RM95bn worth of highway and rail jobs could come onstream from this year onwards and buoy construction activities. The rollout of job awards will focus on the MRT SBK line over the next few months. In the short term, at least three more packages (v1, v4 and v7) of the SBK line, each worth an estimated RM800m-1bn, will be awarded.

Projects Total cost/est. Status

MRT SBK line RM20bn Awards in progress

MRT 2 (circle line) & MRT 3 c.RM40bn Detailed feasibility study in 2H12

West Coast Expressway (WCE) RM7.1bn Pending signing of CA

Suke - highway RM1.6-2.4bn Under study

Dash - highway RM1-1.6bn Under study

Kidex- highway RM2.2bn Under study

High Speed Rail (KL-S'pore) RM30bn Detailed feasibility study in 2H12

RM20bn-25bn contracts could be awarded this year We expect the total value of local job awards in 2H12 to be double the RM13.2bn achieved in 1H12. Driven by the MRT, job awards in 2012 could total RM20bn-25bn compared to RM8.7bn in 2010 and RM8.1bn last year. Of the total RM13.2bn awards YTD, 81% or RM10.7bn was for rail-related works.

8,650 8,100

13,154

25,000

0

5,000

10,000

15,000

20,000

25,000

30,000

2010 2011 1H12 2012E

RM m

Identifying the potential winners 28 companies have prequalified for the remaining packages of the elevated portion of the MRT SBK line. Among the 13 that are listed companies, TRC Synergy, Mudajaya, Sunway, Fajarbaru, Gadang, WCT and Loh & Loh stand a good chance of bagging the viaduct and station packages. Key winners of the WCE remain IJM Corp and Keuro. Recent press reports on Kidex indicated that Bina Puri and Mudajaya are among the likely winners. The MMC-Gamuda JV has a good chance of emerging as the main winner of MRT 2 & 3.

Projects Potential winners

MRT SBK line : 13 listed contractors - see chart

MRT 2 (circle line) & MRT 3 : MMC-Gamuda has a good chance

West Coast Expressway (WCE) : IJM Corp, KEuro, WCT, Mudajaya

Suke - highway : Various/unknown

Dash - highway : Various/unknown

Kidex - highway : Mudajaya, Bina Puri

High Speed Rail (KL-S'pore) : YTL Corp (the original proposer)

Order book and potential top-ups Contractors under our coverage are looking at RM1bn-4bn worth of new contracts by end-2012. Their current outstanding order books of RM2bn-6bn should last for at least two years.

5,800

3,5002,200 2,500

4,0002,840 3,100

1,000

4,000

1,0001,000

1,500

1,0001,500

0

1,500

3,000

4,500

6,000

7,500

9,000

Gamuda IJM Corp MRCB Muhibbah Mudajaya Sunway WCT

Outstanding order book YTD (RM m) Potential replenishment by end 2012 (RM m)

SOURCE: CIMB, COMPANY REPORTS

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Figure 2: Sector Comparisons

Price Target Price

(local curr) (local curr) CY2011 CY2012 CY2011 CY2012 CY2011 CY2012 CY2013 CY2011 CY2012 CY2011 CY2012

Gamuda GAM MK Trading Buy 3.61 4.55 2,465 15.4 12.8 23.7% 3.85 3.62 24.8% 29.2% 30.2% 21.3 15.7 3.1% 3.2%

IJM Corp Bhd IJM MK Trading Buy 5.58 6.55 2,535 18.3 14.6 29.4% 3.08 2.90 17.1% 20.5% 21.4% 12.7 10.5 2.0% 2.1%

Malaysian Resources Corp MRC MK Trading Buy 1.74 2.40 793 30.9 26.9 19.4% 2.80 2.54 9.8% 9.7% 11.1% 19.5 11.8 1.1% 1.4%

MTD ACPI Engineering ACP MK Underperform 0.36 0.44 27 na na na 0.49 0.53 -9.6% -6.3% -6.2% 76.1 16.4 1.9% 1.9%

Muhibbah Engineering MUHI MK Trading Buy 1.27 1.60 170 8.3 7.2 37.7% 0.84 0.82 10.1% 11.5% 12.6% 7.1 7.0 3.9% 3.9%

Mudajaya Group MDJ MK Trading Buy 2.80 3.45 506 6.6 5.7 16.6% 1.62 1.28 28.7% 24.5% 23.8% 3.5 2.5 2.9% 3.0%

Sunway Bhd SWB MK Neutral 2.31 2.65 982 8.1 8.4 -14.8% 1.07 0.87 14.1% 11.2% 10.8% 13.9 7.3 0.0% 3.9%

WCT Bhd WCT MK Trading Buy 2.46 3.00 664 12.0 11.1 13.9% 1.42 1.29 12.7% 12.1% 13.3% 13.6 8.7 4.0% 4.0%

Malaysia average 17.7 14.4 26.8% 2.99 2.82 17.1% 20.1% 21.2% 15.2 11.9 2.4% 2.5%

Adhi Karya ADHI IJ Outperform 1,060 1,100 207 10.5 9.9 13.4% 1.94 1.68 19.6% 18.3% 21.6% 4.0 3.3 2.3% 2.2%

Pembangunan Perumahan PTPP IJ Outperform 760.0 760.0 399 15.3 14.5 21.8% 2.58 2.29 18.4% 16.4% 20.6% 6.2 6.3 1.6% 1.7%

Total Bangun Persada TOTL IJ Outperform 570.0 675.0 211 15.6 11.5 31.7% 3.07 2.67 20.4% 24.8% 22.0% 7.5 5.7 2.2% 3.3%

Wijaya Karya WIKA IJ Outperform 1,100 1,200 720 18.7 15.0 24.7% 3.20 2.76 15.5% 16.6% 17.8% 11.6 11.0 0.9% 1.4%

Indonesia average 15.6 13.3 22.0% 2.78 2.42 17.6% 17.9% 19.8% 7.2 6.6 1.4% 1.8%

CH. Karnchang CK TB Underperform 7.75 7.00 414 na na na 2.01 2.05 -54.3% -2.1% 4.7% na 100.7 1.2% 0.0%

Italian-Thai Development ITD TB Underperform 3.60 3.06 488 na 118.2 5.1% 1.87 1.84 -15.3% 1.5% 4.9% 17.8 11.5 0.0% 0.0%

Sino-Thai Eng & Construction STEC TB Outperform 13.60 18.50 522 17.9 16.8 36.8% 2.86 2.69 18.5% 16.3% 17.5% 12.6 10.3 1.5% 3.3%

Thailand average na 46.5 55.9% 2.19 2.15 -18.7% 4.6% 8.7% 26.8 14.7 0.9% 1.2%

Yongnam Holdings YNH SP Outperform 0.26 0.33 259 5.0 4.8 11.3% 1.10 0.91 24.8% 20.3% 18.2% 3.9 4.0 3.9% 2.4%

Singapore average 5.0 4.8 11.3% 1.10 0.91 24.8% 20.3% 18.2% 3.9 4.0 3.9% 2.4%

Average (all) 19.7 13.4 14.4% 2.28 2.03 11.8% 15.7% 16.8% 13.4 9.9 2.0% 2.5%

EV/EBITDA (x) Dividend Yield (%)Core P/E (x) 3-year EPS

CAGR (%)

P/BV (x) Recurring ROE (%)Company

Bloomberg

TickerRecom.

Market Cap

(US$ m)

SOURCES: CIMB, COMPANY REPORTS

Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

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More miles to go for rail and highway jobs 1. BACKGROUND

1.1 Transport infrastructure does not end with KVMRT

In this piece, we focus on the outlook for large-scale rail and highway projects in 2012 and beyond and show how traffic alleviation initiatives under the 10th Malaysia Plan (1oMP) and Economic Transformation Programme (ETP) go beyond the Klang Valley MRT (KVMRT). Interconnectivity of other developing urban areas beyond the reach of the MRT lines will be supported by the building of urban highways, most of which will be largely elevated and will compensate for the congestion of existing highway networks.

For KVMRT, the 52km MRT Sg. Buloh-Kajang (SBK) line is just the beginning as MRT Co. is planning to start feasibility studies on MRT 2 and 3 in 2H12. Based on the earlier proposal for the MRT, the remaining two lines will be double the length of the SBK line. The detailed proposal and alignment of MRT 2 (circle line) and MRT 3 (radial line) is scheduled to be ready at end-12. This suggests that over the next 5-10 years, construction activities will be driven by transport infrastructure works.

1.2 Implementation of highway projects under 10MP

The 10MP has outlined seven new highways to be built over the next 4-5 years. The rollout of these highways kicked off with the approval of the West Coast Expressway (WCE) in early Jan 12. Despite much controversy, we believe that it is just a matter of time before the concession agreement (CA) is finalised, ideally before the upcoming general elections. Other highways will be much shorter than WCEs 316km but the cost/km is estimated to be higher given the almost fully elevated structures. The new highways will traverse highly populated areas (brown field) compared to WCEs alignment through the west coast of Selangor which is less populated.

2. OUTLOOK

2.1 Three urban highways at the planning stage

Our checks indicated that three urban highways are already at the planning stage. They are the Sg. Besi-Ulu Kelang Expressway (Suke), Damansara-Shah Alam Highway (Dash) and Kinrara-Damansara Expressway (Kidex). These highways are among the seven planned for development under the 10MP. The total value of the seven highways is estimated to be RM19bn. They are targeted to be completed within the next five years, i.e. by 2017. Suke and Dash will be owned and managed by Project Lintasan Kota Holdings Sdn Bhd (Prolintas), which currently operates and manages the Ampang-Kuala Lumpur Elevated Highway, Guthrie Corridor Expressway and Lebuhraya Kemuning Shah Alam.

2.2 Suke

Suke is a 31.8km, three-lane, dual carriageway expressway that will start at Sri Petaling and pass through Sungai Besi, Alam Damai, Cheras-Kajang, Taman Bukit Permai, Taman Putra, Taman Permai Jaya, Taman Dagang Permai, Taman Kosas, Ampang dan Taman Hillview before ending at Ulu Kelang.

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Figure 3: Details of Suke

Designation : Sungai Besi-Ulu Kelang Elevated Expressway (SUKE)

Length : 31.8km, 3 lane, dual carriageway (fully elevated)

Total cost : Unknown

Total cost/km : Unknown

Total toll stops : 3 toll plazas,11 interchanges

Total land to be acquired : Unknown

Construction period : 4-5 years

Concession period : Unknown

Concession owner : Projek Lintasan Kota Holdings Sdn Bhd (Prolintas) - 100%-owned by PNB

Coverage area : Alternative route for MRRII, linking major highways in Eastern Klang Valley SOURCES: CIMB, COMPANY REPORTS

Figure 4: Sukes alignment

SOURCES: PROLINTAS WEBSITE

2.3 Dash

Dash is a 20.1km, three-lane, dual carriageway expressway that will commence at the Puncak Perdana U10 Shah Alam intersection and serve as a link for Puncak Perdana, Alam Suria, Denai Alam, Kampung Melayu Subang, Jalan Sungai Buloh, the Rubber Research Institute of Malaysia, Kota Damansara, Damansara Perdana and Mutiara Damansara. The expressway ends at the Penchala interchange.

Figure 5: Details of Dash

Designation : Damansara-Shah Alam Highway (DASH)

Length : 20.1km, 3 lane, dual carriageway (fully elevated)

Total cost : Unknown

Total cost/km : Unknown

Total toll stops : 3 toll plazas,12 interchanges

Total land to be acquired : Unknown

Construction period : 4-5 years

Concession period : Unknown

Concession owner : Projek Lintasan Kota Holdings Sdn Bhd (Prolintas) - 100%-owned by PNB

Coverage area : Link between east and west of Klang Valley: Shah Alam to Damansara Perdana SOURCES: CIMB, COMPANY REPORTS

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Figure 6: Dashs alignment

SOURCES: PROLINTAS WEBSITE

2.4 Kidex

Kinrara-Damansara Expressway (Kidex) will link Kinrara in Puchong and Pusat Bandar Damansara. The main purpose of this fully elevated, 50km highway is to divert the heavy traffic on the Lebuhraya Damansara Puchong (LDP).

Figure 7: Details of Kidex

Designation : Kinrara-Damansara Expressway (KIDEX)

Length : 50km, 3 lane, dual carriageway (fully elevated)

Total cost : RM2.2bn

Total cost/km : RM44m

Total toll stops : 3 toll plazas,11 interchanges

Total land to be acquired : Unknown

Construction period : 4-5 years

Concession period : Unknown

Concession owner : Unknown

Coverage area : Kinrara-Damansara SOURCES: CIMB, COMPANY REPORTS

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Figure 8: Kidexs alignment

SOURCES: CIMB, MALAYSIA TODAY

2.5 Feasibility study of MRT 2 & 3 to start in May 12

On the rail side, MRT Corp has targeted the feasibility study of MRT 2 & 3 to commence this month. Review of the alignment will take six months and the proposal is slated to be ready by end-2012. The focus will be on MRT 2 as it is circle line that will connect high-density areas and link the MRT line with the existing monorail and LRT networks. MRT 3 will be a radial line spanning the northwest to southwest of Klang Valley and connecting Kepong, Selayang and Klang.

Figure 9: MRT 2 & 3

Lines Type Distance Coverage

MRT 2 Circle line na City centre - connection to other rail networks, largely underground

MRT 3 Radial line na Northwest-southwest of Klang Valley - Kepong, Selayang, Klang SOURCES: CIMB, COMPANY REPORTS

2.6 Detailed feasibility study of HSR

It is encouraging that the high-speed rail (HSR) project is still under consideration as it would boost construction activity. The HSR project connecting Kuala Lumpur to Singapore could cost as much as RM30bn, as recently reported. It would take 1 years to design and 3-4 years to construct.

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However, several feasibility issues need to be addressed and finalised by end-12 before the government makes a decision. We also gather that the HSR is likely to be implemented as a privately-funded project with no government subsidies and a target of 8m passengers p.a. for the project to be viable.

Figure 10: Details of HSR

Project type : Likely privately led with no government subsidy

Cost : RM30bn

Coverage : KL-JB-Singapore

Distance : 320km

Completion of feasibility studies : End 2012 or 1Q2013

Development period : 1.5 years - design, 3-4 years - construction

Viable passengers p.a. for HSR : 8m

Passenger catchment : >2m airline travellers p.a., 2m cars and bus users p.a. SOURCES: CIMB, EDGE WEEKLY

2.7 Balance of works for LRT extension

Syarikat Prasarana Negara (Prasarana) has targeted to disburse in two months time the remaining four work packages worth RM2.5bn for the Ampang light rail transit (LRT) extension. The four packages are for the supply of the LRT trains, construction of Station 12, supply and management of the access card and the engineering, procurement and construction contract (EPCC). The latest package worth RM300m was awarded to Fajarbaru Builder. Scope of works include depot and traction substation for Ampang LRT extension.

3. ESTIMATION OF COST

3.1 New highways will be fully elevated, double the value of non-urban highways

Based on our checks with various contractors, the cost/km for fully elevated urban highways ranged from RM50m to RM80m over the past five years but has risen to around RM80-100m. It should rise by 10-15% over the next five years. The cost/km was RM8m for PLUS Expressways 772km North South Expressway (NSE) which was built in 1987-94, largely on flat land. The cost/km for the next mega highway i.e. the WCE, which will be built over the next five years, is RM22.1m (including land acquisition cost) or 185% higher than NSEs. By comparison, the cost of fully elevated highways at current material prices is easily double the value of non-urban highways on a cost/km basis.

Figure 11: Comparison between WCE and NSE

Details WCE NSE

Designation : West Coast Expressway (WCE) North South Expressway (NSE)

Length : 316km - 224km tolled, 92km toll-free (original length: 275.5km) 772km

Project type : Built-operate-transfer (BOT) Built-operate-transfer (BOT)

Total cost : RM7.1bn (original cost: RM3.1bn) RM6bn

Total cost/km : RM22.3m (original cost/km: RM11.3m) RM7.8m

Total toll stops : 16 (9 in Selangor, 7 in Perak)

Total land to be acquired : 1,601.7 acres (77.8 acres state land, 1,523.9 acres private land) na

: Total cost of RM980m to be borne by the gov't na

Construction period : 5-6 years 7 years (1988-94)

Concession period : 60 years (33 years as previously reported) 50 years

Initial/start-up funding : RM2.2bn Gov't support loan (GSL) of RM2.2bn @ 4% p.a. na

: Interest subsidy up to 3% on commercial loans for 22 years

Concession owner : West Coast Expressway Sdn Bhd Project Lebuhraya Utara Selatan (PLUS)

Major concession owner : Kumpulan Europlus (80%) UEM (51%)

Other concession owners : IJM Corp (through Road Builder) - 20% EPF (49%)

Coverage area : Linking Banting (Selangor) with Changkat Jering (Perak) Bukit Kayu Hitam (northern Kedah) to Johor Bahru (South) SOURCES: CIMB, COMPANY REPORTS

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Using the RM50m-80m/km as a guide, (i) Suke could cost RM1.6bn-2.5bn, (ii) Dash could cost RM1bn-1.6bn, and (iii) Kidex may cost RM2.5bn-4bn. Press reports have indicated that Kidex is worth RM2.2bn, implying a cost/km of RM44m.

Figure 12: Estimated cost for new highways

Length Cost/ km Estimated cost

(km) (RM m) (RM m) @RM50m/km @RM80m/km

Suke 31.8 50 80 1,590 2,544

Dash 20.1 50 80 1,005 1,608

Kidex 50.0 50 80 2,500 4,000 SOURCES: CIMB, COMPANY REPORTS

3.2 MRT/HSR lines require more steel than highways

Earlier estimates put the total value of all three lines of the KVMRT at RM40bn-50bn. However, it appears that the figure could be higher. Given that the 51km MRT SBK line is likely to cost around RM20bn, MRT 2 & 3 could be valued at almost RM40bn. Our calculation is based on the 150km total length of the KVMRT as proposed earlier and the implied RM392m/km average cost for the MRT SBK line. Excluding the 51km MRT SBK line that is already being implemented, the remaining distance for the two lines is 99km, of which 31km is likely to be the total distance for the tunnelling works.

Note that based on the RM8.3bn undergrounds works awarded to the MMC-Gamuda JV, cost/km works out to RM874m, which is more than double the average cost/km of RM392m for the SBK line. For the HSR, the latest reported cost estimate of RM30bn is more than double the RM12bn estimated by SPAD earlier and nearly double the RM16.5bn price tag under the ETP.

Figure 13: Our cost estimate for MRT 2 & 3

Total distance Total cost Cost/km

MRT SBK line 51km RM20bn RM392.2

MRT 2 & 3 99km RM39bn RM392.2

Total cost for KVMRT 150km RM59bn

150km total length for KVMRT based on earlier proposal

Total tunnelling length for all three lines is 40km based on earlier proposal

Balance tunnelling portion for MRT 2 & 3 works out to be 31km

Balance elevated portion of MRT 2 & 3 works out to be 69km SOURCES: CIMB, COMPANY REPORTS

Figure 14: Details of the RM8.3bn MRT SBK underground works

Project value (RM m) : 8,300

Distance (km) : 9.5

Cost/km (RM m) : 874

No. of underground stations : 7

Contractor : Gamuda-MMC JV

JV share : 50:50

Target completion : 2016

Gamuda's share of works : 4,100

Guided pretax margins : 10-15% SOURCES: CIMB, COMPANY REPORTS

4. INDICATION OF TIMING

4.1 Momentum of job award has been strong in 1H12

The highlights for the construction sector YTD are the approval of the RM7.1bn WCE, and the award of 1) the project development partner (PDP) role to the MMC-Gamuda JV, 2) the RM974m package v5 (elevated guideway/viaduct) to IJM Corp, 3) RM764m package v6 (elevated guideway/viaduct) to AZRB and 4) the RM8.3bn underground works (tunnelling and stations) to the

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MMC-Gamuda JV. Total rail-related jobs awarded YTD amount to RM10.7bn or 81% of the total awards of RM13.2bn.

Figure 15: Project awards YTD

Date Contractor Project RM m

16-Jan-12 Mitrajaya Two/three story terrace house and shop office in Putrajaya 33.4

17-Jan-12 Kimlun Corp Two blocks of service apartments and ancillary buildings in Putrajaya 82.1

2-Feb-12 IJM Corp MRT SBK line package v5 (elevated guideways/viaducts) 974.0

2-Feb-12 AZRB MRT SBK line package v6 (elevated guideways/viaducts) 764.0

7-Feb-12 WCT New HQ for Ministry of International Trade & Industry (MITI) 301.0

7-Feb-12 Kimlun Corp Supply of segmental box girders (SBG) for MRT SBK line 223.2

13-Feb-12 Hock Seng Lee Road construction job in Sarawak 82.2

20-Feb-12 Mitrajaya Subcontract works for extension of Kelana Jaya LRT 46.8

20-Feb-12 Mitrajaya Subcontract works for extension of Ampang LRT 55.2

20-Feb-12 Mitrajaya 560 units of medium cost apartments, 8 units of shop houses in Putrajaya 79.4

21-Feb-12 Eversendai Structural steel for steam turbine hall for Janamanjung plant extension 25.0

21-Feb-12 Eversendai Manjung 4 project ducts - Janamanjung plant extension 7.0

22-Feb-12 WCT Kota Kinabalu Medical Centre 331.0

23-Feb-12 Mudajaya 1,000MW extension of Tanjung Bin coal-fired power plant 1,006.0

23-Feb-12 Eversendai Mechanical equipments & structure erection works for Tanjung Bin plant extension 367.0

12-Mar-12 Kimlun Corp Apartment and ancillary buildings in Johor 68.3

14-Mar-12 TRC Synergy Renovation of Komplex Dayabumi 36.0

20-Mar-12 Fajarbaru Builder Demolish and reconstruct Shaw Parade 72.9

20-Mar-12 Gamuda-MMC JV MRT SBK line underground works (9.5km tunnel and 7 stations) 8,300.0

3-May-12 Fajarbaru Builder Depot and traction power substation for Ampang LRT extension 299.8

Total 13,154.3 SOURCES: CIMB, COMPANY REPORTS

4.2 Expect good newsflow in 2H12 and beyond

Highlights for the construction sector from 2H12 include feasibility studies as well as the tender process and award of rail and highway jobs. The award of the remaining packages of the MRT SBK line will remain a priority as the tender process started at the beginning of this year.

Awards in 2H12 should also focus on the station works for the elevated and underground works, and depot works. According to recent press reports, the MMC-Gamuda JV will subcontract RM3bn-4bn worth of underground station works. All in all, we expect the total value of job awards in 2H12 to be double the value in 1H12. Contract awards in 2012 could total RM20bn-25bn compared to RM8.7bn in 2010 and RM8.1bn last year.

Figure 16: Value of local job awards

Title:

Source:

Please fill in the values above to have them entered in your report

8,650 8,100

13,154

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SOURCES: CIMB, COMPANY REPORTS

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4.3 Remaining packages of SBK line to be awarded earlier

The MMC-Gamuda JV, the project development partner (PDP) for MRT SBK line plans to speed up the award of the majority of contracts from the Oct 12 deadline to early 3Q12. This means that about 80% of projects could be awarded for the civil, station and depot works months ahead of schedule. The PDP initially indicated that 85% of projects would be dished out by Oct 12.

So far, 27 out of the 86 elevated packages have been awarded, bringing the total contract value to RM10.4bn. In the short term, at least three more packages (v1, v4 and v7) of the SBK line, each worth an estimated RM800m-1bn, will be awarded.

Figure 17: Tender and award schedule for MRT SBK line elevated portion

SOURCES: MRT CORP.

Figure 18: Tender and award schedule for MRT SBK line underground & station works

SOURCES: MRT CORP.

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Figure 19: Prequalifiers for MRT SBK lines non-tunnelling portion (listed & non listed)

Elevated civil

works Open category (5 packages) Bumiputera category (3 packages)

(8 packages) 1. Sunway Construction Sdn Bhd 1. Naim Engineering Sdn Bhd

2. Mudajaya Corporation 2. Trans Resources Corporation Sdn Bhd

3. Trans Resources Corporation Sdn Bhd 3. TSR Bina Sdn Bhd

4. Muhibbah Engineering Sdn Bhd 4. Ahmad Zaki Sdn Bhd

5. IJM Construction Sdn Bhd 5. HRA Teguh Sdn Bhd

6. Ahmad Zaki Sn Bhd 6. MTD Construction Sdn Bhd

7. MRCB Engineering Sdn Bhd 7. Syarikat Muhibbah Perniagaan & Pembinaan Sdn Bhd

8. Gadang Engineering Sdn Bhd 8. Zecon Sdn Bhd

9. Loh & Loh Construction Sdn Bhd 9. Cergas Murni Sdn Bhd

10. Konsortium Putra Perdana Const & 10. Tidal Marine Engineering Sdn Bhd

Worth Builder JV

Station (8 packages)Open category (5 packages) Bumiputera category (3 packages)

1. Trans Resources Corporation Sdn Bhd 1. Trans Resources Corporation Sdn Bhd

2. Sunway Construction Sdn Bhd 1. Naim Engineering Sdn Bhd

3. Naim Engineering Sdn Bhd 3. TSR Bina Sdn Bhd

4. Fajarbaru Builders Sdn Bhd 4. Ahmad Zaki Sdn Bhd

5. IJM Construction Sdn Bhd 5. HRA Teguh Sdn Bhd

6. Loh & Loh Construction Sdn Bhd 6. Kembang Serantau Sdn Bhd

7. Muhibbah Engineering Sdn Bhd 7. Apex Communication Sdn Bhd

8. Gadang Engineering Sdn Bhd 6. Pembinaan Bukit Timah Sdn Bhd

9. Pembinaan Mitrajaya Sdn Bhd 9. Perkasa Sutera Sdn Bhd

10. WCT Bhd 10. Dekon Sdn Bhd

11. Kencana Torsco Sdn Bhd - Al Ambia JV 11. Syarikat Muhibbah Perniagaan & Pembinaan Sdn Bhd

12. Konsortium PPC - WB JV (Putra Perdana Const.

& Worthy Builders Sdn Bhd

Depots (2 packages) Open category (1 package) Bumiputera category (1 package)

1. Sunway Construction Sdn Bhd 1. Trans Resources Corporation Sdn Bhd

2. Trans Resources Corporation Sdn Bhd 2. Naim Engineering Sdn Bhd SOURCES: CIMB, COMPANY REPORTS

4.4 Funding for MRT SBK line is in place

It was recently reported that Maybank Investment Bank, CIMB Investment Bank, RHB Investment Bank and AmInvestment Bank have been appointed to manage the sale of Islamic (Sukuk) bonds to partly finance the construction of MRT SBK Line. Dana Infra, a subsidiary of the Ministry of Finance (MOF), will launch the bonds as early as end-May 12. The first tranche will raise RM8bn, and the initial issuance of Sukuk bonds could be as much as RM2bn. Dana Infra may issue an additional RM30bn via a 50-year programme, which will be announced later.

5. RISKS

5.1 Political risks

Highway projects in Malaysia follow a built-operate-transfer (BOT) model involving the participation of the private sector. The private sector will either undertake the construction on its own or tender out the packages to various contractors. The contract also comes with a concession agreement (CA) for a fixed period, usually 33-50 years. The CA will stipulate the toll rates and the quantum of toll hikes for every three or five years.

The challenge for concessionaires is to address potential issues, usually brought about by opposition parties, on the absolute cost of the highway and concession period. Case in point is the RM7.1bn WCEs CA that will run up to 60 years, which is the longest in history. Political risk also applies to larger-scale jobs like the MRT and the HSR which are estimated to cost RM40bn-50bn each.

5.2 Uncertainty of tolling and risks to CA terms

Uncertainty of tolling is another risk for concessionaires. Case in point is the Eastern Dispersal Link (EDL) in Johor. The highway was completed in early 2012 and was opened to public in 1 Apr 12 with one month of free tolling. There appears to be issues with the location of the toll booth, i.e. at the Customs and Immigration Complex (CIQ) into Singapore. Those who oppose the highway

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claimed that because of the location of the toll booths, vehicles that pass the CIQ from Singapore will have to pay toll even if they exit into Johor Bahru town and not use the entire stretch of the EDL.

This is bad news for MRCB, the concessionaire, as this could mean that the no-tolling period could be extended, with no visibility on potential compensation from the government. The compensation should at least cover the RM7m/month of interest charges starting in Apr 12. The group indicated recently that it is willing allow the government to acquire the highway at the right price.

6. VALUATION AND RECOMMENDATION

6.1 RM95bn worth of rail and highway jobs

Overall, we estimate that RM95bn worth of highway and rail jobs could come onstream from this year onwards and buoy construction activities. The rollout of job awards will focus on the MRT SBK line over the next few months. Contractors under our coverage are looking at RM1bn-4bn worth of new contracts by end-2012. Their current outstanding order books of RM2bn-6bn should last for at least two years.

Figure 20: Rail and highway jobs

Title:

Source:

Please fill in the values above to have them entered in your report

1,000 1,6002,200

7,100

20,000

30,000

40,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Dash Suke Kidex WCE MRT SBK Line HSR MRT 2 & 3

*Values for Dash, Suke, Kidex and MRT 2 & 3 are based on CIMB's estimates

RM m

SOURCES: CIMB, COMPANY REPORTS

Figure 21: Outstanding order book and potential replenishments

Title:

Source:

Please fill in the values above to have them entered in your report

5,800

3,500

2,200 2,500

4,000

2,840 3,100

1,000

4,000

1,0001,000

1,500

1,000

1,500

0

1,500

3,000

4,500

6,000

7,500

9,000

Gamuda IJM Corp MRCB Muhibbah Mudajaya Sunw ay WCT

Outstanding order book YTD (RM m) Potential replenishment by end 2012 (RM m)

SOURCES: CIMB, COMPANY REPORTS

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6.2 Potential winners

Potential winners of the remaining packages of the elevated portion of the MRT SBK line are the 28 prequalifiers, 13 of which are listed contractors. Among the 13, we gather that TRC Synergy (TRC MK, Not rated), Mudajaya, Sunway, Fajarbaru (FBC MK, Not rated), Gadang (GADG MK, Not rated), WCT and Loh & Loh stand a good chance of bagging the viaduct and station packages. Key winners of the WCE remain IJM Corp and KEuro (KEUR MK, Not rated). We continue to believe that the MMC-Gamuda JV has a good chance of emerging as the main winner of MRT 2 & 3. While there are still no additional details on the three new highways (Suke, Dash & Kidex), recent press reports on Kidex indicated that Bina Puri (BIN MK, Not rated) and Mudajaya are among the likely winners.

Another potential rail related job which is outside of Klang Valley is the RM8bn Gemas-JB double tracking project. This is the last double tracking works for peninsula Malaysia. Based on our previous checks, the local contractors that could bag the project are Gamuda, IJM Corp and WCT. All three are in consortiums with Chinese contractors. We understand that time line for the award of the contract is after general elections.

Figure 22: Major transport infra (rail & highway jobs)

Projects Potential winners

MRT SBK line : 13 listed contractors - see chart

MRT 2 (circle line) & MRT 3 : MMC-Gamuda has a good chance

West Coast Expressway (WCE) : IJM Corp, KEuro, WCT, Mudajaya

Suke - highway : Various/unknown

Dash - highway : Various/unknown

Kidex - highway : Mudajaya, Binapuri

High Speed Rail (KL-S'pore) : YTL Corp (the original proposer)

Gemas-JB double tracking : Gamuda, WCT, IJM Corp SOURCES: CIMB, COMPANY REPORTS

Figure 23: Exposure for 13 listed contractors for MRT SBK line elevated packages

Listed contractors Elevated civil works Station works Depots

Open Bumiputera Open Bumiputera Open Bumiputera

Ahmad Zaki Yes Yes No Yes No Yes

Fajarbaru Builders No No Yes No Yes No

Gadang Yes No Yes No Yes No

IJM Corp Yes No Yes No Yes No

MRCB Yes No No No No No

Mudajaya Yes No No No No No

Muhibbah Engineering Yes No Yes No Yes No

Naim Holdings No Yes Yes Yes Yes Yes

Sunway Yes No Yes No Yes No

Trans Resources Corp Yes Yes Yes Yes Yes Yes

TSR Capital No Yes No Yes No Yes

WCT No No Yes No No No

Zecon No Yes No No No No SOURCES: CIMB, COMPANY REPORTS

6.3 Maintain Trading Buy on sector

Our conclusion is that there is much in store for the sector beyond KVMRT. Over the next 5-10 years, construction activities will be driven by transport infrastructure works, on top of power plant and building works. The local construction scene remains buoyant with a slew of rail and highway projects that will be awarded in the medium term and new ones that could onstream if they pass the feasibility tests and if political factors are favourable. Job awards will continue to be led by MRT SBK line packages. We expect newsflow to be good in 2H12. This continues to anchor our Trading Buy stance on the sector, which is not an Overweight because of political risk (review and potential delay of mega projects) if the general election outcome is unfavourable. While Gamuda and IJM Corp are still our top picks, we highlight Mudajaya as the next potential big winner for highway jobs.

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Figure 24: Summary of stock recommendations

Companies Ticker Rec. Closing price TP Target price Upside RNAV Trading

(RM) (RM) basis (%) /share discount to

RNAV

Gamuda GAM MK Trading Buy 3.61 4.45 10% RNAV discount 23% 4.95 -27%

IJM Corp IJM MK Trading Buy 5.58 6.55 10% RNAV discount 17% 7.27 -23%

MRCB MRC MK Trading Buy 1.74 2.40 20% RNAV discount 38% 3.00 -42%

Muhibbah MUHI MK Trading Buy 1.27 1.60 40% RNAV discount 26% 2.67 -52%

Mudajaya MDJ MK Trading Buy 2.80 3.45 40% RNAV discount 23% 5.74 -51%

Sunway SWB MK Neutral 2.31 2.65 30% RNAV discount 15% 3.79 -39%

WCT WCT MK Trading Buy 2.46 3.00 30% RNAV discount 22% 4.28 -43%

Average 23% -40% SOURCES: CIMB, COMPANY REPORTS

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Recommendation Framework #1 *

Stock Sector

OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months.

NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months.

TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months.

TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected

returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

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Recommendation Framework #2 **

Stock Sector

OUTPERFORM: Expected positive total returns of 15% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 12 months.

NEUTRAL: Expected total returns of between -15% and +15% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +15% (or better) or -15% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +15% to -15%; both over the next 12 months.

UNDERPERFORM: Expected negative total returns of 15% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 12 months.

TRADING BUY: Expected positive total returns of 15% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 3 months.

TRADING SELL: Expected negative total returns of 15% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily

outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.

ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCP - Excellent, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, ITD - Good, IVL - Very Good, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good:

More miles to go for rail and highway jobsBACKGROUNDTransport infrastructure does not end with KVMRTImplementation of highway projects under 10MP

OUTLOOKThree urban highways at the planning stageSukeDashKidexFeasibility study of MRT 2 & 3 to start in May 12Detailed feasibility study of HSRBalance of works for LRT extension

ESTIMATION OF COSTNew highways will be fully elevated, double the value of non-urban highwaysMRT/HSR lines require more steel than highways

INDICATION OF TIMINGMomentum of job award has been strong in 1H12Expect good newsflow in 2H12 and beyondRemaining packages of SBK line to be awarded earlierFunding for MRT SBK line is in place

RISKSPolitical risksUncertainty of tolling and risks to CA terms

VALUATION AND RECOMMENDATIONRM95bn worth of rail and highway jobsPotential winnersMaintain Trading Buy on sector