KUALA LUMPUR: CGS-CIMB Equities Research expects the first half of 2020 to be subdued for construction companies following the recent political developments up to the change in government.
The research house said on Thursday its channel checks have revealed more concerns than optimism surrounding the implementation of new infrastructure projects that have been planned by the previous government under Tun Dr Mahathir Mohamad.
“Selected contractors vying for government-driven jobs indicated a general decline in tender book (total value of jobs in tender) since end-2019.
“One key observation was the slower-than-expected disbursement of government funds to kick off selected contracts under Budget 2020, ” it said.
CGS-CIMB Research’s ground/industry checks also revealed a heightened level of uncertainty over the status of several projects.
They are the targeted April timeline for the final approvals of the RM3.2bil Johor-Singapore Rail Transit System (RTS); 2) the 2Q20 targeted roll-out of the RM3bil to RM4bil new tenders for the East Coast Rail Line (ECRL); 3) the tender/awards of the Light Rail Transit (LRT) and highway scopes of the Penang Transport Masterplan (PTMP, RM18bil) due in 2H20F, and 4) the RM20bil to RM40bil KL– Singapore HSR, upon the expiry of its review period in May.
It pointed out there would be a prolonged overhang on share prices of contractors that were previously perceived to benefit from the new implementation cycle for large-scale contracts.
“We continue to expect the sector’s contract award momentum in FY20F to come off a low base, from our estimated RM80bil total jobs awarded in 2019 (pending new data release), compared with FY18’s RM134bil as per Construction Industry Development Board’s (CIDB) data, ” it said.
CGS-CIMB Research said that in the medium term, it also believes that the Penang infrastructure theme, via the RM18bil PTMP could be downplayed, in view of the uncertainties as to whether the Penang state government would be able to raise RM10bil in bonds, backed by the then-planned federal government guarantee, given the change in Cabinet ministers, including the Minister of Finance (MOF).
Also, the ability of the lead contractor of the PTMP project delivery partner (PDP) to raise its upfront working capital needs, via proceeds from the RM6.2bil acquisition of highways by the MOF, remains to be seen, in view of the risks of further delays for the deal closure.
“We feel that the sector overhang could sustain in the coming months due to the political uncertainties, weighed by diminishing sector bright spots.
“We reiterate our Neutral sector rating and expect share prices to remain weak. Upside risk is a selective revival of projects by the new government.
“Within our coverage, we believe Sunway Bhd (Hold), via Sunway Construction, could emerge as one of the key bidders for the RM2bil Iskandar BRT and RM3.2bil RTS, while YTL Corp (Hold) could be seen as reviving its potential exposure to the KL-Singapore HSR project, ” it said.
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