The research house referred to the construction projects spanning over 10 years from 2008 to 2018 that have proved to be unsustainable.
"We believe valuations of construction stocks are lofty with a weighted average forward P/E of 18.9x on a weighted EPS growth rate of only 2.1% in FY20F," it said in a note.
AmInvestment currently has an underweight call on the sector, but may be upgrade it to neutral/overweight if the government decides to pump-prime the economy with public projects in the event of external shocks.
The research house's view on the sector was confirmed by the surprise 25bps overnight policy rate cut by Bank Neagara in January as the central bank looks towards monetary easing to sustain economic growth.
"While the government may introduce a stimulus package to counter the potential drag on the economy from the prolonged Wuhan coronavirus epidemic, we believe the focus will be on small-scale shovel-ready projects such as roads, pavements, bridges, schools and public amenities (that will benefit mainly the smallish and unlisted construction outfits)," said AmInvestment.
It added that public infrastructure spending in 2020 will be focused on completing ongoing projects at a reduced cost and/or over an extended construction period.
Such projects incude the East Coast Rail Link (ECRL) (RM44bil), MRT2 (RM30.5bil), LRT3 (RM16.6bil) and the Pan Borneo Highway, Sarawak (RM16.5bil).
AmInvestment believes the government will be reluctant to revive projects that are currently on hold. However, it added that there will be exceptions to this such as the Johor Bahru-Singapore Rapid Transit System (JB-Singapore RTS) (RM3.6bil) and Sarawak-Sabah Link Road (RM5.2bil).
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