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PETALING JAYA: The construction sector’s earnings are expected to rebound in the third quarter (Q3’19) from a low base in Q3’18 post-general election, according to Affin Hwang Capital.
“We expect aggregate construction core earnings to see a recovery in Q3’19 with higher progress billings for ongoing projects. There will also be the low base effect for year-on-year (yoy) comparison as sector core earnings contracted 27% yoy in Q3 18 due to the stalling of some projects as the new government renegotiated the contracts to reduce cost,” the research house in a report today.
It also foresees public sector contract awards will pick up in 2020.
“East Coast Rail Link subcontracts to be awarded to Malaysian contractors will start in Q1’20. More packages for the Pan Borneo Highway Sabah will also be rolled out. More packages for the Pan Borneo Highway Sabah will also be rolled out. Other large-scale projects such as the Klang Valley MRT Line 3, Penang Transport Master Plan and KL-Singapore High Speed Rail could see news flow on potential revival in 2020.”
For Q3 this year, public-sector civil works done by contractors grew 3.4% year-on-year (yoy) to RM16.6 billion, bringing the nine-month works done to RM109.4 billion (+0.3% yoy).
Meanwhile, the total value of construction works done in Malaysia was up 0.4% yoy to RM36.1 billion in Q3’19, mainly driven by civil engineering works that offset the contraction in the property sector due to the property market downturn.
Affin Hwang said despite the expectation of an earnings recovery in Q3’19, sector core earnings may still contract 1.6% yoy this year before rebounding 7.9% next year.
“This is mainly due to lower Gamuda earnings following the disposal of its Splash water concession and stakes in four toll highway concessions. Excluding Gamuda, sector core earnings per share growth is stronger at 8% yoy in 2019 and 17.6% in 2020.”
The research house is maintaining its “overweight” call for the construction sector on the back of the resumption in government infrastructure spending, with Gabungan AQRS, Gamuda, Sunway Construction and Pintaras Jaya as top buys.
“Other sector buys are AME Elite Consortium, HSS Engineers and Taliworks.”
