PETALING JAYA: Construction counters have been in hibernation mode at least since June, with little or flattish movements in prices since the slight rebound from the March 19 plunge.
The KL Construction Index has been fluctuating between the 160-point and 170-point mark since June.
While it had come off its low of 121.91 points on March 19, the index was still nowhere close to its pre-Covid levels of above 200 points.
The market has been expecting the sector to pick up in the second half this year, hoping that the government would bank on construction to anchor the nation’s economic recovery post-pandemic but there have been no major catalysts yet to trigger any meaningful movements.
Political instability has long been a bane to the construction industry, hampering the execution of key infrastructure projects.
The sector has gone through three different administrations in Putrajaya in just three years from 2018 until now and no mega projects really kicked off throughout the period.
Just last week, Sabah shocked the nation when the state assembly was dissolved amidst a political crisis to pave way for fresh polls.
In the business world, the spotlight is now on the Pan Borneo Highway project in the state again.
KAF Equities Research said in a note recently that there could be renewed concerns over the prospects for several major infrastructure projects in Sabah.
“The evolving political situation may have knock-on effects on the execution of Pan Borneo Sabah, we believe.
“Prior to this, the project had already been mired in delays with its progress as well as award of tenders.
“One of the reasons in our view was the change in project structure as part of the previous administration’s cost rationalisation exercise, which resulted in the dismantling of the project delivery partner (PDP) mechanism, ” it said, adding that lingering uncertainties about the status of Pan Borneo Sabah, which spans 1,236km, could persist until a resolution to the state’s political impasse was reached.
Affin Hwang Capital Research senior associate director Loong Chee Wei agreed that the political uncertainties in Sabah could delay the implementation of the Pan Borneo Highway in the state but he pointed out that no listed construction companies were awarded contracts for project in Sabah and hence, there was no impact.
“But Gabungan AQRS Bhd and Suria Capital Holdings Bhd are jointly bidding for some packages. Their prospects to win contracts could be adversely affected if the roll out of contracts are delayed, ” he told StarBiz.As of June, the progress for Pan Borneo Sabah had only reached 32% as compared to its original completion target of Dec 12,2021.
While not all is rosy when it comes to the political situation on the Federal level, all eyes are on the tabling of Budget 2021 in November and the tabling of the 12th Malaysia Plan (RMK-12), expected to be in January next year as it will give a better view of the government’s infrastructure direction in 2021.
CGS-CIMB Research infrastructure analyst Sharizan Rosely said Budget 2021 and RMK-12 would provide a more in depth understanding of the government’s plans for the sector next year.
“I hope there will be more clarity on how the government intends to revive infrastructure spending.
“At the end of the movement control order (MCO) and the start of the recovery MCO, investors and industry players have been on a constant wait-and-see approach for some policies from the ministries.
“After Penjana (National Economic Recovery Plan) and after we’ve been managing the first few phases of MCOs, now it’s time for the government to get back into action in implementing economic policies and recovery plans for sectors that were affected, ” he told StarBiz.
Sharizan added that while politics has affected the progress of some contracts, it would still play a role in the rollout of contracts in 2021.
On the sector’s 2020 earnings, he said it would be a washout year for revenue and profits due to weaker billings for the year and also a slow restart in activities.
Loong said he maintained his “underweight” call on the sector, on the back of a slow roll-out of government projects in 2020, earnings risk for construction companies due to disruption from the MCO and political uncertainties.
“But there is a potential recovery in second half 2020 as the government is starting to revive large-scale infrastructure projects, kicking off with the Rapid Transit System Link between Malaysia and Singapore.
“The revival of more large-scale infrastructure projects such as Kuala Lumpur-Singapore High-Speed Rail and the mass rapid transit line 3 (MRT 3) will improve prospects for order book replenishment of the listed construction companies, ” he said.
Meanwhile, RHB Research said in a report that second half 2020 may offer fresh catalysts and shed more light on potential earnings visibility.
It maintained its “neutral” call on the sector pending further developments, adding that it appeared to be plausible for the MRT3 project to stage a comeback.
The project was scrapped by former prime minister Tun Dr Mahathir Mohamad in May 2018, shortly after Pakatan Harapan took over the government.
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