Page 1 of 12 15 February 2016 HLIB Research PP 9484/12/2012 (031413) Sarawak Elections MARKET VIEW 15 February 2016 Play on the polls Highlights Sarawak to hit the polls. The 11 th Sarawak Elections must be held by 20 th Sept 2016. However, this is likely to happen earlier as Chief Minister Adenan Satem (CM Adenan) has proposed to the Election Commission to hold the polls on 30 th April with nominations on 16 th April. BN likely to retain control. Political analysts hold a consensus view that the Barisan Nasional (BN) coalition will likely retain control of Sarawak. CM Adenan’s high approval rating (74%), redelineation exercise resulting to more rural constituencies and a fragmented opposition are all factors working in BN’s favour. Politics of developmentalism. It has been observed that funding promises, especially for infra increases as election approaches. This is already happening with Budget 2016 spelling many benefits for “Sarawakians”. We expect more positive news flow on project rollouts running up to the polls. What do voters want? A survey by the Merdeka Centre reveals that “jobs creation” and “improving rural infra” are the 2 nd and 3 rd most important issues requiring attention from the State Govt. We believe the State Govt will try and address these matters through (i) industrialisation of Sarawak’s economy via SCORE and (ii) building the Pan Borneo Highway (PHB) to improve connectivity in the state. SCORE for Sarawak. SCORE has amassed RM33bn worth of investments from 2008-2014. Most that have set up within SCORE are energy intensive industries. The key pull factor here is the availability of cheap electricity generated by hydro dams. To further harness this potential, Sarawak Energy has planned to build 12 hydro dams from 2008-2020, increasin g the state’s generation capacity by 7000MW. This would spur other infra requirements such as transmission lines and access roads. Pan Borneo takes off. We reckon that the 1,089km PBH (RM16bn) will be the most anticipated mega project to kick start running up to the polls. 17 consortiums are said to have been prequalified for 10 packages involving the highway’s main stretch. Initial awards are expected as soon as March. Stock Picks SCable - Beneficiary of ramp up in Sarawak’s generation capacity via transmission line contracts. Also looking to supply guardrails and lamp poles for the PBH. HSL - Marine engineering expertise provides an edge to bid for PBH given Sarawak’s swampy terrain. CMS - Beneficiary of PBH via construction and supply of aggregates. Also a cement monopoly in Sarawak. Naim - Said to be top contender (JV with Gamuda) for one of the earlier PBH packages. TRC - Only Peninsular contractor that can bid for state funded jobs. Has competed RM1bn jobs in Sarawak. Harbour – To benefit from Sarawak’s overall development via increase in demand for project cargo. Jeremy Goh, CFA [email protected](603) 2168 1138 Approval rating for CM Adenan Source: Merdeka C entre Pan Borneo Highway Source: Lebuhray a Borneo U tara Potential Sarawak Election plays Stock Rating Price Target SCable BUY 1.48 2.57 HSL HOLD 1.93 2.04 CMS N ot Rated 5.03 NA N aim N ot Rated 2.48 NA TRC N ot Rated 0.365 NA H arbour N ot Rated 2.70 NA
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Page 1 of 12
15 February 2016
HLIB Research
PP 9484/12/2012 (031413)
Sarawak Elections
MARKET VIEW
15 February 2016
Play on the polls
Highlights Sarawak to hit the polls. The 11th Sarawak Elections must
be held by 20th Sept 2016. However, this is likely to happen
earlier as Chief Minister Adenan Satem (CM Adenan) has
proposed to the Election Commission to hold the polls on
30th April with nominations on 16th April.
BN likely to retain control. Political analysts hold a
consensus view that the Barisan Nasional (BN) coalition will
likely retain control of Sarawak. CM Adenan’s high approval
rating (74%), redelineation exercise resulting to more rural
constituencies and a fragmented opposition are all factors
working in BN’s favour.
Politics of developmentalism. It has been observed that
funding promises, especially for infra increases as election
approaches. This is already happening with Budget 2016
spelling many benefits for “Sarawakians”. We expect more
positive news flow on project rollouts running up to the polls.
What do voters want? A survey by the Merdeka Centre
reveals that “jobs creation” and “improving rural infra” are the
2nd and 3rd most important issues requiring attention from the
State Govt. We believe the State Govt will try and address
these matters through (i) industrialisation of Sarawak’s
economy via SCORE and (ii) building the Pan Borneo
Highway (PHB) to improve connectivity in the state.
SCORE for Sarawak. SCORE has amassed RM33bn worth
of investments from 2008-2014. Most that have set up within
SCORE are energy intensive industries. The key pull factor
here is the availability of cheap electricity generated by
hydro dams. To further harness this potential, Sarawak
Energy has planned to build 12 hydro dams from 2008-2020,
increasing the state’s generation capacity by 7000MW. This
would spur other infra requirements such as transmission
lines and access roads.
Pan Borneo takes off. We reckon that the 1,089km PBH
(RM16bn) will be the most anticipated mega project to kick
start running up to the polls. 17 consortiums are said to have
been prequalified for 10 packages involving the highway’s
main stretch. Initial awards are expected as soon as March.
Stock
Picks
SCable - Beneficiary of ramp up in Sarawak’s generation
capacity via transmission line contracts. Also looking to
supply guardrails and lamp poles for the PBH.
HSL - Marine engineering expertise provides an edge to bid
for PBH given Sarawak’s swampy terrain.
CMS - Beneficiary of PBH via construction and supply of
aggregates. Also a cement monopoly in Sarawak.
Naim - Said to be top contender (JV with Gamuda) for one
of the earlier PBH packages.
TRC - Only Peninsular contractor that can bid for state
funded jobs. Has competed RM1bn jobs in Sarawak.
Harbour – To benefit from Sarawak’s overall development
HSL 1,061 1.93 2.04 HOLD Dec 14.2 13.2 1.6 1.5 11.9% 1.4%
CMS 5,404 5.03 NA Not Rated Dec 23.1 18.1 2.7 2.5 11.7% 1.9%
Naim 588 2.48 NA Not Rated Dec 11.0 8.6 0.5 0.5 4.0% 1.5%
TRC 175 0.365 NA Not Rated Dec 7.3 8.5 0.5 0.5 7.0% 2.7%
Harbour 491 2.70 NA Not Rated June 8.4 8.7 NA NA 20.0% 2.4%
HLIB estimates
Note: T1 refers to most immediate forecast year, T2 refers to the year after T1. For “non-rated” stocks, estimates based on consensus.
HLIB Research | Sarawak Elections
www.hlebroking.com
Page 12 of 12
15 February 2016
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Equity rating definitions
BUY Positiv e recommendation of stock under coverage. Expected absolute return of more than +10% ov er 12-months, with low risk of sustained downside. TRADING BUY Positiv e recommendation of stock not under coverage. Expected absolute return of more than +10% ov er 6-months. Situational or arbitrage trading opportunity . HOLD Neutral recommendation of stock under coverage. Expected absolute return betw een -10% and +10% over 12-months, with low risk of sustained downside. TRADING SELL Negativ e recommendation of stock not under coverage. Expected absolute return of less than -10% ov er 6-months. Situational or arbitrage trading opportunity.
SELL Negativ e recommendation of stock under coverage. High risk of negative absolute return of more than -10% ov er 12-months. NOT RATED No research coverage and report is intended purely for informational purposes.
Industry rating definitions
OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% ov er 12-months. NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return betw een –5% and +5% over 12-months. UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than –5% ov er 12-months.