Sector Note - On the road to recovery
The construction sector is primed for a recovery in 2010, thanks to (1) an uptick in GDP growth from 3.5% in 2009 to 5.0% in 2010, (2) a more conducive lending environment, which will boost demand for private property, (3) increasing government spending on infrastructure, (4) the rollout of projects that were delayed by the upcoming elections and slow demand, (5) a recovery in margins in 2010 as construction companies factor in the final tax structure in their pricing, and (6) stabilising prices for most construction materials. Factoring in the encouraging prospects, we upgrade our sector call from underweight to OVERWEIGHT. Our top pick of the sector is WIKA with target price of Rp400.
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