CIMB Sector Update – Construction – On strong foundation

We have started liking the Indonesian construction sector for three reasons: 1) improving prospects from higher government spending and a more optimistic view on the implementation of infrastructure projects; 2) contractors appear to be managing a higher industry tax well amid global economic uncertainties, after struggling in the past two years; and 3) repaired balance sheets should help to improve risk perception. While public-sector projects are expected to lead growth, the budding property-sector recovery suggests private-sector projects have the capacity to surprise on the upside. Key catalysts would be a pick-up in the execution of investment and infrastructure projects, while key risks would be another delay in deregulation which may hinder infrastructure project development. Our top picks are PTPP, WIKA and TOTL, given their growth appeal and balance-sheet strength.