Affin Hwang Research upgrades construction sector to overweight

  • Construction
  • Wednesday, 07 Aug 2019

KUALA LUMPUR: Affin Hwang Capital Research has upgraded the construction sector from Neutral to Overweight as Malaysia Rail Link Sdn Bhd (MRL) will call for tenders for the RM44bil East Coast Rail Link (ECRL) project civil works in 4Q19.

It said on Wednesday more infrastructure projects are likely to be revived. It expects infrastructure spending to accelerate in 2020 to support GDP growth.

“We upgrade Gamuda to BUY from Hold as a large-cap sector proxy. AQRS, HSS and SCGB are our top small and mid-cap sector BUYs," it said.

To recap, MRL said 331 Malaysian construction companies were shortlisted as potential tenderers for the ECRL civil packages, ie, 25% out of 1, 321 companies that submitted applications for pre-qualification.

All shortlisted companies are expected to be notified in writing before end-August 2019 by main contractor China Communications Construction Company Ltd (CCCC).

Affin Hwang Research said most of the contractors under it coverage are likely to be pre-qualified.

“We gather that AQRS, Pintaras Jaya, WCT Holdings, WZ Satu, Sunway Construction have been pre-qualified to tender for ECRL subcontract works among the companies under our coverage.

“We believe IJM Corp and MALAYSIAN RESOURCES CORP are likely to be pre-qualified given their established track records. We believe AQRS, SCGB, MRC, WCT and IJM could win civil packages for the ECRL, ” it said.

The research house said tender packages will be issued for 40% of the civil works (excluding tunnel works) and would first involve the 223-km stretch (out of a total length of 640 km) from Dungun to Mentakab where the rail alignment had been finalised.

It also pointed out the Penang Transport Master Plan (PTMP) has been revived with the federal government’s approval of the RM7.5bil 19.5-km Pan Island Link 1 (PIL2), RM8.4bil 29.5-km Light Rail Transit (LRT) and Penang South Reclamation (PSR) components.

Other large-scale infrastructure projects that could be revived in 2020 include the Klang Valley MRT Line 3 (MRT3) and Kuala Lumpur-Singapore High Speed Rail (KL-SG HSR) following a review to cut the project cost.

The KL-SG Rapid Transit System (RTS), Johor Bus Rapid Transit (BRT) and Labuan Bridge are also being considered for implementation.

“The construction sector real GDP growth has outpaced Malaysian GDP growth in most years post-Global Financial Crisis, except 2011 and 2018 due to domestic political uncertainties.

“We expect the trend to resume with government pump-priming via infrastructure spending to support GDP growth in 2020, given rising external risks. We believe the positive news flow will sustain the upward rerating of the construction sector and upgrade our call to Overweight from Neutral. Top Buys are AQRS, Gamuda, SunCon and HSS, ” it said.

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