Sabah election likely to spur state-linked stocks

PETALING JAYA: Analysts are not discounting the fact that Sabah-related stocks may see sentiment-driven interest in the next couple of months due to the impending 17th Sabah state election.

MBSB Research said in a report to clients that it is possible that the Sabah elections may influence stocks in construction and property due to state development pledges and election campaigns emphasising infrastructure and job creation; plantation stocks which are linked to land policies and infrastructure; and the port/logistics segment.

“We believe that localised or state issues tend to trump other issues in a state election. Having said that, it will be interesting to observe the outcome of the Sabah state election, given the fluidity of the situation,” the research house said.

MBSB Research said the conventional wisdom is that the market would get excited at the mere mention of a general election.

“However, we observed that market performance (namely the FBM KLCI) prior to an election has historically been mixed, and action seems to come in after an election.

“For example, there was a relief rally in 2013 after concerns that there might be a change of government then, but Barisan Nasional eventually won.”

It said as such, state elections will likely have less of an influence on market performance.

“We postulate that investors are now more concerned about the resultant (political, societal and economic) stability post-election, and less on pre-election goodies and promises,” said MBSB Research.

It had highlighted some Sabah stocks such as Azam Jaya Bhd, Life Water Bhd, Suria Capital Holdings Bhd and Innoprise Plantations Bhd as likely beneficiaries.

The research house noted that Azam Jaya Bhd was a key Sabah-based contractor with a strong track record in state infrastructure projects.

Furthermore, MBSB Research said there are potential accelerated allocations for the Pan Borneo Highway upgrades, rural road connectivity and flood mitigation work which Azam Jaya may be well-positioned to secure.

Historically, election cycles in Sabah have triggered higher infrastructure spending, it added.

In the case of Life Water Bhd, it said the company is the largest beverage manufacturer in Sabah, specialising in bottled drinking water and carbonated drinks.

The research house noted that there is possible emphasis on tourism growth and infrastructure upgrades that will boost demand for bottled water in hotels, restaurants, and retail outlets.

Water infrastructure gaps in rural areas could also create structural demand for bottled water, while rural development programmes will likely increase household consumption, it added.