Construction companies’ earnings forecast stays

The Bursa Malaysia Construction Index has risen almost 16% over the last four weeks.(File pic MRT 2 construction)

PETALING JAYA: Affin Hwang Capital Research expects construction work at certain key projects, including the Klang Valley MRT Line 2 (MRT2) and light rail transit line 3 (LRT3), to resume as early as next week. The research house also says some building projects have been approved to resume work next week.

However, it will not be back to full force yet, as there will be restricted working hours at these sites as set by the Ministry of International Trade and Industry (Miti).

Affin Hwang said the restrictions include minimal workers on site – limited to 50% of the usual requirement – and restricted working hours from 8am to 5.30pm five days a week.

Since March 18, all construction work has been halted as part of the government’s movement control order (MCO) measure to curb the spread of the coronavirus.

Looking at the situation, construction projects could stretch beyond the deadline.

“We maintain our earnings forecast for the construction companies, as we have factored in slower progress billings for the first half of the year, ” Affin Hwang said in a report.

Despite some of the main construction work restarting, it expects weak earnings visibility among the construction players due to the MCO and concerns on order book replenishment. “We reaffirm our underweight call on the sector, ” Affin Hwang said.

Among its top picks include Sunway Construction Group Bhd (SunCon), AME Elite Consortium Bhd and Taliworks Corp Bhd.

It has a “sell” call on Gamuda Bhd, IJM Corp Bhd and Malaysian Resources Corp Bhd.

Note that construction counters on Bursa Malaysia have had a good run over the last few weeks in line with the broad market rally.

The Bursa Malaysia Construction Index has risen almost 16% over the last four weeks. Despite the rally, on a year-to-date basis, the index is still down about 25%, as investors remain uncertain about the sector post-MCO.

“Upside risks to our negative sector view include government pump-priming through the revival of key infrastructure projects, the pick-up in the award of government projects and faster-than-expected resumption of works on construction projects, ” Affin Hwang said.

It said that many listed contractors on Bursa Malaysia had applied to resume work at their projects last week and some have already received approval from Miti. These include SunCon, HSS Engineers Bhd, YTL Corp Bhd, WCT Holdings Bhd and IJM Corp Bhd.

AffinHwang said SunCon and YTL have received approval to resume all their construction projects. Meanwhile, for WCT, HSS and IJM, only some of their projects have been approved.

“We understand that SunCon has been allowed to resume works at all 10 existing projects, including its MRT2 and LRT3 subcontract packages, the Tenaga Nasional Bhd headquarters and four building projects for Sunway, which include two hospital projects, ” Affin Hwang said.

For HSS, it said the company has received approval to resume all engineering works with the restriction of up to 50% of its staff requirement in the office or construction sites, while others work from home.

“But some of HSS’ construction management works on certain projects have to wait for the contractors to be approved by Miti to resume work, ” Affin Hwang said.

For YTL, it has received Miti’s approval to resume work on the Gemas-Johor Baru double-tracking project. “WCT has only been allowed to undertake critical work for the MRT2 and Pan Borneo Highway project since late-March, with no new approvals from Miti yet to resume work on its other projects.

“IJM has received approval to resume work on some of its projects, but we have not received the details on which projects will resume from management, ” it said.

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