Outlook on construction sector remains cloudy, says PublicInvest

KUALA LUMPUR: The government's mid-term review of the 11th Malaysia Plan confirmed the anticipated guidance of lower growth and reduction in development expenditure in the country's construction sector.

PublicInvestment Research says its outlook on the sector remains cloudy in the interim due to a lack of near-term catalysts. It added that the negative news flow calls into question earnings visibilities and inevitable margin squeezes.

The research house maintains its neutral rating on the sector with a negative bias.

PublicInvest said the construction sector reported an average growth of 7.1% annually for the first half of the year, which came short of the initial target of 10.3% per annum. 

It said this was due to high-multiplier projects but growth is projected to slow even further for the remainder of the year at an annual average of 4.3%.

"This is in line with the lower public investment of 0.8% per annum as the Government will now be selective in the rollout of big-ticket projects," it said.

It noted that develoment expenditure has been cut by 15.4% from RM260bil to RM220bil for the overall plan period of 2016 to 2020.

PublicInvest added that the construction industry will no longer be a notable contributor to national growth with the focus shifting towards affordable housing, public schools and hospitals as well as improving infrastructure and road network in rural areas.