As for IJM Corp Bhd, CIMB Research has a hold call and TP of RM1.84, RM1.67 close. IJM
KUALA LUMPUR: CIMB Equities Research is maintaining its underweight rating for the construction sector due to the expectations of a downturn for new contracts in 2019.
It said on Friday the 11th Malaysia Plan (11MP) mid-term review (MTR) provided more clarity on Malaysia's contract outlook and the government's stance on contract rollout.
“We see muted impact on the overall sector, with no upside surprises in new contracts. We maintain our sector Underweight rating, predicated on the sector’s job downturn in 2019F.
“Revival of deferred or cancelled mega rail contracts is an upside risk. The next event to look out for is Budget 2019 announcement on Nov 2,” it said.
CIMB Research said the reprioritisation of large-scale projects will be the order of the day for the remaining two years of the 11MP.
The 11MP MTR highlighted that the Malaysian construction sector chalked up average growth of 7.1% per annum since 2016.
“Over the remaining period of 11MP, the degree of public sector infra spending will be capped by the government’s tight fiscal space. No surprises here.
“Slower sectoral growth over the next two years is very likely. Off-budget funding (contingent liabilities) has been significantly cut. The Economic Planning Unit (EPU) expects sector growth to moderate to 4.3% p.a. (2019-20F), according to the 11MP MTR,” it pointed out.
However, the public-private sector (PPP) model in contract procurement will be beefed up.
“We understand that this could take the form of pure cash contracts, or land swap deals. This is most relevant to selected small/medium-sized contractors, but we believe the tender environment will be very competitive (oversupply of idle capacity players) and hence unlikely to appeal to all large contractors. Clear proxies this new angle remains limited, sector wide,” it said.
As for IJM Corp Bhd
, CIMB Research has a hold call and TP of RM1.84, RM1.67 close. IJM’s order book of RM9bil is the highest among big contractors.
The group may reposition to bid for PPP-type projects but CIMB Research believes it will be selective. IJM Corp is one of the works package contractors (WPC) for LRT 3 and MRT 2.
As for Protasco, it has a reduce call and TP of 40 sen versus closing price of 35 sen.
“Likely revision to contract pricing for road contracts and a move to pure open tender for housing jobs would likely be negative for Protasco. The 11MP MTR did not lay out details on potential new road maintenance contracts, which is Protasco’s niche segment,” it pointed out.
As for YTL Corporation, CIMB Research also has a hold call with a target price of RM1.40, RM1.14 close.
YTL Corp is the biggest beneficiary of mega rail contracts in Johor via the Gemas-JB rail double tracking project (RM8bil to RM9bil). The group is the project's main turnkey contractor via YTL-SIPP JV.
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