Positive developments in the construction sector


KUALA LUMPUR: Job awards momentum in the construction sector is expected to pick up again in second half of 2017 and into 2018, according to Maybank Investment Bank Research.


The research house said earnings delivery of construction players with robust orderbooks would be in the limelight as major infrastructure project progress accelerates.


“Our sector top ‘buy’ pick is IJM Corp as a direct proxy to growing Chinese investments in Kuantan through MCKIP and Kuantan Port.


“Sunway Construction is our mid-cap pick as the only pure major construction stock with strong earnings visibility and potential for higher orderbook replenishment,” Maybank said, adding that it was “positive” on the construction sector.


The research house noted that 1H17 could have seen a slower pace of infrastructure job awards after hitting a high of RM88bil in 2016.


“We expect the momentum on contract awards and job flows to pick up again in 2H17, continuing into 2018,” Maybank said.


Based on historical trends, Maybank said 2H17 should see infrastructure job awards picking up, expecting the major packages of KVLRT 3 (RM9bil) to kick off first.


Additionally, it said maiden packages from ECRL (RM55bil) and Gemas–JB double track rail (RM9bil) should be awarded as well.


“The tabling of National Budget 2018 slated for Oct 27 is a key event to reaffirm infrastructure development with financing from direct government development expenditure and off the government’s balance sheet,” Maybank said.


Maybank believes earnings delivery could be a further rerating catalyst for the sector given the robust outstanding orderbooks and decent orderbook cover ratios.


“We expect companies with exposure to KVMRT 2 (Gamuda, IJM, and Sunway Construction within our coverage) to report relatively stronger earnings as work progress accelerates from 2H17.


“However, construction progress at the Pan Borneo Sarawak Highway which has been slow due to finalisation of contract details, would delay meaningful earnings contribution expected in 3Q17 to 4Q17/1Q18,” it added.


Maybank expects the major civil works tender to kick off in 2018 as the KL-SG High Speed Rail AssetsCo tender was expected to be called in 4Q17.


“In 2018 too, we expect the Bandar Malaysia development (GDV of RM150bil) to have selected a new master developer with the request for proposal currently ongoing (to close today),” it added.


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