PETALING JAYA: Contract awards and news flow in the construction sector are expected to accelerate due to recovery in development expenditure as government rolls out major infrastructure projects, according to HLIB research.
However, the research house said that in spite of the recovering landscape, the absence of further details and timeline of mega infrastructure catalysts such as the MRT3 and high speed rail (HSR) project, current valuations have baked in the recovery prospects capping a potential broad sector rally.
“Nonetheless, positive news flow and healthy order book levels should cushion the downside,” it said in a report.
For 2020, HLIB Research expects development expenditure to rebound by 4.3% year-on-year (yoy) to RM56 billion against a 4.3% decline in the previous year as the government rolls out previously delayed infrastructure projects.
With that it anticipates a pick up in construction contract awards off a low base, as domestic contract awards in 2019 to listed contractors are down 40% yoy.
Furthermore, the research house pointed out that job flows in Peninsular Malaysia remained tepid in the previous year, with Sarawak jobs picking up the slack.
“We expect stronger job flows as the state government has allocated RM9.9 billion for development expenditure under the State Budget 2020, beating its previous high of RM9 billion in 2019,” it said.
HLIB Research said the Second Trunk Road project, valued at RM5 billion is slated to see 11 sub-packages tendered out in early 2020.
On the other hand, another mega project in the pipeline is the Sabah-Sarawak Link Road, which is valued at RM5.4 billion. The first work package of RM1.2 billion covering a 90km stretch is to be tendered out by 1H20 with works to start by 4Q’20.
“In addition, implementation of water-related projects and wastewater management worth RM2.8 billion are also ongoing since 2018,” it said.
In the first half of this year, the research house expects news flow regarding tenders for the East Coast Rail Link and Pan Borneo Sabah, which will see packages 28, 29 & 30, valued at RM980 million to be tendered out in March 2020 with the remaining 20 packages falling under the 12th Malaysia Plan (2021-2025).
It highlighted that the government is expected to come to a decision for the HSR and MRT3 by mid-2020, based on news reports.
“On the other hand, Penang Transport Master Plan which is valued at RM24 billion may feature in 2H20 starting with Bayan Lepas LRT to be rolled out if the bond funding is firmly in place,” said HLIB Research.
In regard to financing for the project, the Penang chief minister has stated that the state will issue a RM10 billion federal-guaranteed sukuk to finance the railway project.
The research house also opined that smaller projects like Rapid Transit System and Iskandar BRT may also come into the foray in the second half of the year.
With that, HLIB Research said that it maintains a neutral call on the construction sector with Sunway Construction Group Bhd and Hock Seng Lee Bhd as its top picks with a target price of RM2.30 and RM1.64, respectively.
