On the right track

  • Business
  • Wednesday, 10 Apr 2019

PETALING JAYA: Construction counters continue to be on the uptrend - this time driven by the potential revival of the Kuala Lumpur-Singapore high-speed rail (HSR) project.

Stocks seen as beneficiaries of the project such as GEORGE KENT (M) BHD, YTL Corp Bhd, MMC Corp Bhd, GAMUDA BHD and Iskandar Waterfront City Bhd (IWCity) were up.This followed an announcement by Prime Minister Tun Dr Mahathir Mohamad that Malaysia was exploring proposals aimed at reducing the cost of the HSR project.

Dr Mahathir said the country would discuss the matter further with Singapore before the end of the project’s suspension period on May 31, 2020 during a joint-press conference with Singapore Prime Minister Lee Hsien Loong after the Ninth Malaysia-Singapore Leaders’ Retreat in Putrajaya yesterday.

George Kent topped the list of construction gainers.

The engineering specialist saw its shares gain 14 sen, or 11.7%, to close at RM1.34.

Meanwhile, YTL’s shares rose nine sen, or 8.1%, to RM1.20, while MMC’s shares gained five sen, or 5%, to RM1.05.

Gamuda’s shares, on the other hand, were up three sen to RM3.28, while IWCity’s shares rose 4.5 sen, or 5.6%, to 85.5 sen.

Overall, most major construction stocks have been rising in recent months, as investors put their bets on the potential revival of mega-infrastructure projects that had been put on hold since Pakatan Harapan came into power mid-last year.

Earlier, it was the widely-reported potential revival of the East Coast Rail Link (ECRL) that had been driving the uptrend of the construction stocks.

While investors have turned positive on the construction sector on the possible revival of mega-infrastructure projects, some brokerages prefer to maintain a cautious view until official announcements of the status of the projects are made.

CIMB Research has maintained its “underweight” stance on the sector despite acknowledging news reports hinting on a scaled-down version of the ERCL getting the green light from the government by the end of the month.

“Bilateral renegotiations on the ECRL are pointing to a revival of the project with significant cost reductions, which is positive for local contractors if a sizeable portion of the project is subcontracted by China Communications Const-ruction Co Ltd (CCCC),” CIMB Research wrote in its report.

It noted that CCCC was likely to remain as the engineering, procurement, construction and commissioning (EPCC) contractor for the ECRL.

“Pending an official announcement on the ECRL, details of the new project structure under the EPCC/turnkey model and the official proportion of subcontract works to local players, we maintain our ‘underweight’ rating on the sector,” CIMB Research explained.

Citing recent media reports that both Malaysia and China had agreed to revive the ECRL project, albeit on a smaller scale, with significant cost reduction and a rerouting of the alignment, TA Research said it was a positive development on the sector.

“We are positive on the development, as the revival of the mega-project is likely to boost job opportunities and confidence in the construction sector, which has been in the doldrums since the change of the federal government in the 14th General Election,” TA Research wrote in its recent report.

According to the brokerage, key beneficiaries of the revival of the ECRL could include IJM Corp Bhd, HSS Engineering Bhd, Econpile Holdings Bhd, Advancecon Holdings Bhd and Gabungan AQRS Bhd.

Other contractors that could also benefit are Gamuda, SUNWAY CONSTRUCTION GROUP BHD, WCT Holdings Bhd and Gadang Holdings Bhd.

Nevertheless, TA Research has maintained its “underweight” recommendation on the construction sector. This is because it has deemed the sector’s valuations as having run ahead of its fundamentals, especially after the recent rebound in the share prices of some construction stocks.

“In addition, the property market, in which most of the contractors have direct and/or indirect exposure to, remains challenging,” it said.

“With prices of key construction materials such as cement and steel bars at depressed levels, in the event that the prices of these materials rebound, this could pose a risk of margin contraction to existing jobs in the pipeline, which the companies have tendered and secured based on a lower cost budgeted for the construction materials,” it added.

Overall, the Bursa Malaysia Construction Index (KLCON Index) rose 0.83%, or 1.71 points, to 207.6 points yesterday. Year-to-date, the KLCON Index has gained 33%.


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