The Random Character of Stock Market Prices

Gamuda Bhd’s share price slumped for the third consecutive trading day after its managing director Datuk Lin Yun Ling, who has helmed the company for 27 years, cut his stake in the construction-based company.

The stock fell another 26 sen to RM3.66, with 98.27 million shares valued at RM346.36 million done yesterday.

According to a Bloomberg report, Gamuda’s market value has dropped almost a third, erasing RM3 billion since Feb 21 when Lin said he had cut his stake to 1.7% from 5.2%.

The report said construction stocks including rival MMC Corporation Bhd also tumbled as analysts speculated the sale by Lin suggested the country’s building industry was poised to decline. MMC yesterday fell 14 sen to RM3.66.

The Edge Financial Daily reported yesterday that construction stocks had been adversely impacted by concerns over rising material costs, apart from news of Lin ceasing to be a substantial shareholder of Gamuda, with the construction index underperforming the Kuala Lumpur Composite Index.

Bloomberg cited a Citigroup Inc report that share prices of Malaysian builders were overvalued and may sink further.

Lin’s sale “prompted fear that the prospects of the industry may be peaking,” Citigroup analyst Wai Kee Choong, who has a sell on the stock, wrote in a report yesterday.

“Until we see more downgrades in target prices and earnings of construction companies to more realistic levels, it is still too early to bottom fish.”

According to the Bloomberg report, Lin said he was still “optimistic” about Gamuda’s prospects and some analysts said the government would award more contracts under a RM200 billion five-year spending plan stretching to 2010.

“I don’t think the construction industry is about to go downhill,” said Kaladher Govindran, head of research at TA Securities Bhd, who raised his rating on Gamuda to buy from hold after the stock slump. He said the sell-off “is not justified”.

the edgedaily