Construction sector downgraded, lower margins seen

UOB Kay Hian noted that post the 14th General Election (GE14) that saw Pakatan Harapan (PH) taking over the Federal Government, most construction and highway-concession related stocks have tumbled significantly, besieged by concerns of potential cancellation/deferment of some mega projects, contract renegotiation of ongoing mega projects, and toll road concessionaires being compromised.

PETALING JAYA: Lower-than-anticipated margins will become the new normal for contractors as they compete for new projects in the near term, due to more prudent spending by the government, said UOB Kay Hian Research.

The research house, which downgraded the sector to underweight, said margins were now expected in the range of 5%-6% compared to 8%-10% previously.