Slow recovery likely for construction sector

Construction core net profit

PETALING JAYA: Local construction players are in for a slow earnings-recovery path, following business disruptions during the movement control order (MCO) and delay in restarting operations.

Affin Hwang Capital in a report yesterday said the full impact of the MCO will likely be felt in the second quarter of this year, as construction sites were only allowed to restart work in early May.

“But the requirement for all foreign workers to be tested for the Covid-19 infection before being allowed to work at construction sites delayed the restarting of construction operations.

“The disruption to supply chains from building materials to equipment supplies also contributed to the delay. Hence, we expect most construction companies to report weaker results in the second quarter of 2020.”

As such, the research house expects a slow earnings recovery for the sector, with most earnings forecasts reduced following the first-quarter results.

“At the start of the year, we had projected a sector core earnings per share (EPS) growth of 13% year-on-year (y-o-y) in 2020, recovering from an earnings contraction over the previous two years. Following the earnings cuts, we now expect the sector’s core EPS to contract by 24% y-o-y in 2020, for the third year in a row, before recovering to a growth of 3% y-o-y in 2021.”

Year-to-date, the Bursa Malaysia Construction Index has fallen 17.54%. The index dropped to its lowest on March 19 to 121.91 points, a day after the MCO was implemented. Since then, the index has bounced back up over 40%.

Meanwhile, the Construction Industry Development Board (CIDB) in a recent survey noted that work had yet to start at 23% of construction sites in the country due to several factors, such as financial problems, labour shortage and not being able to comply with the standard operating procedure (SOP).

Based on the survey last month, CIDB said work had yet to start at 35% of the construction sites due to financial problems. Another 21% failed to meet the SOP, especially on the need to send workers for Covid-19 screening which involved cost.

To date, 33,613 foreign workers have undergone the Covid-19 screening, of which 40% are from the construction sector.

Affin Hwang Capital, meanwhile, said the majority of the construction companies’ first-quarter 2020 earnings were below expectations.

“Out of the 10 construction companies that we cover, 60% came in below our expectations, 10% within our expectations and 30% above our expectations. Aggregate construction sector earnings contracted 41% y-o-y, but grew 4% quarter-on-quarter in the first quarter of 2020.”

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