Gamuda, IJM, Builders Gain on Higher Budget Spending

Shares of Gamuda Bhd. (GAM), IJM Corp. and other Malaysian builders rose after Prime Minister Abdullah Ahmad Badawi unveiled his first ``expansionary'' budget, boosting spending to revive the building industry.

Malaysia on Sept. 1 increased development spending by 31 percent to 46.5 billion ringgit ($12.7 billion) for 2007, the biggest jump ever. More than half will be allocated to the construction industry, which is set to expand this year for the first time in three years.

``The creation of new construction jobs will jump-start the construction sector and also provide a multiplier effect to revive domestic consumption,'' Vincent Khoo, head of research at Hwang-DBS Vickers Research Sdn., said in a report today. It's a ``positive surprise'' for the industry.

Building companies stand to benefit the most from Abdullah's announcement, the biggest expansionary budget ever for Malaysia, according to Mayban Securities Sdn., as the government seeks to bolster growth in Southeast Asia's third-largest economy amid concerns high oil prices will hurt global economic growth. Abdullah, who became prime minister in October 2003, had previously cut spending to narrow the deficit.

The Ministry of Finance on Sept. 1 said the economy may expand 5.8 percent this year, slower than the central bank's March forecast of 6 percent. The construction industry may grow 0.7 percent this year and 3.7 percent next year, it said.

Tax Cuts

The government also cut corporate taxes for the first time in nine years and introduced incentives for the Islamic finance and property trust industries to attract more investment.

Gamuda, Malaysia's third-biggest builder, rose 12 sen, or 2.9 percent, to 4.18 ringgit at the close at 5 p.m. local time on Malaysia's stock exchange. IJM, the second largest, added 10 sen, or 1.7 percent, to 6 ringgit, while YTL Corp., the No. 1 builder, gained 5 sen, or 0.9 percent, to 5.35 ringgit.

The government will spend 27.5 billion ringgit on roads, housing and other infrastructure facilities next year, while so-called private sector initiatives valued at 4 billion ringgit will be implemented, it said.

Key winners from the budget are Gamuda, IJM, UEM Builders Bhd. and WCT Engineering Bhd., Hwang-DBS said in the report.

The higher spending will ``spell the rebirth of the construction sector,'' OSK Research Sdn. said in a note to clients today. Construction companies will be ``lapping their lips with enthusiasm,'' it said, giving an ``overweight'' rating to the industry.

`Clear Winners'

Smaller builders such as Ahmad Zaki Resources Bhd., Crest Builder Holdings Bhd. (CBH) and Hock Seng Lee Bhd. (HSL) are ``clear winners'' from the government spending, the report said. The ``bigger boys'' that stand to gain are Gamuda and IJM, it added.

Ahmad Zaki rose 2 sen, or 0.9 percent, to 2.14 ringgit, its fifth day of gains. Crest fell 0.5 percent to 95 sen while Hock Seng Lee fell 4 sen, or 1.3 percent, to 2.96 ringgit.

Transport equipment-related stocks such as Scomi Engineering Services Bhd. may also gain as the government plans to extend rail services, the OSK report said.

Plantation companies may also benefit from the government's plan to set up a 500 million ringgit biodiesel fund through Bank Pembangunan Bhd., a state development bank, to lure more investments in the development of fuel alternatives.

The country may export 14.6 million metric tons of palm oil in 2007, 4.4 percent more than this year, the government said. IOI Corp., the country's biggest oil palm planter, jumped 80 sen, or 4.7 percent, to 17.70 ringgit. Golden Hope Plantations Bhd., the No. 3 Malaysian oil palm planter, rose 12 sen, or 2.5 percent, to 4.90 ringgit.

British American Tobacco (Malaysia) Bhd. gained as the government's tax increase on cigarettes this year was smaller than in the three previous years. The company raised cigarette prices today.

British American Tobacco, the country's biggest cigarette company, gained 50 sen, or 1.2 percent, to 42.50 ringgit.

The increase will ``not only offset the incremental cost but also further enhance 2007 earnings by 3-4 percent,'' Hilmi Mokhtar, research manager at OSK Research Sdn. said in a note today. OSK Research raised the stock's rating to ``buy'' from ``neutral.''

To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net

To contact the editor responsible for this story: Adrian Kennedy in Singapore at adkennedy@bloomberg.net

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