Construction comeback

  • Construction
  • Monday, 07 Sep 2020

Between the MRT 3 and HSR, Alliance DBS research felt that the more immediate project would likely be the MRT 3, as MRT 2 is already around 75% completed. The MRT 3/Circle Line is deemed vital in order to complete the loop and ensure ridership continues to grow, it said in a Sept 3 Market Strategy report.

PETALING JAYA: After suffering a setback as growth stalled because of the Covid-19 pandemic, the revival of some infrastructure projects to expedite economic recovery could see investor-interest returning to the construction sector.

The government is expected to announce its medium-term recovery plan next month, which may serve as a prelude to the potential approval of funding for projects in Budget 2021 in November and the 12th Malaysia Plan. “The short-term economic recovery or Penjana plan did not include any revival of mega construction projects, but this was not unexpected.

“The medium-term economy recovery plan would most likely be tabled in Parliament in October and there could be news flow on the revival of some of the mega projects which are vital for job-creation and to buffer economic shocks. For construction companies, meanwhile, it opens up fresh opportunities, ” said an analyst.

While rollouts of new public infrastructure projects in a major way over the short-term is unlikely given the government’s fiscal constraints, he said there could be news flow on the Mass Rapid Transit Line 3 (MRT3) in the upcoming budget as one of “anchor shovel-ready infrastructure projects” to revive the economy.

Future developments included the KL-Singapore High Speed Rail (HSR) once outstanding issues have been ironed out between Malaysian and Singapore.

According to some observers, the mega projects are crucial to pump-prime the local economy given the lack of new mega infrastructure projects since 2018 when there was a change in the Federal Government after the 14th General Election.

“We expect 2020/2021to be affected similarly to previous crises with the government tolerating a higher budget deficit, raising the government debt-to-GDP ceiling and pump-priming the economy.

“This may be more crucial now with increased job losses amidst the challenging economic outlook and the prospect of a general election, which has to be called by 2023, ” AllianceDBS said in a Sept 3 market strategy report.

Between the MRT 3 and HSR, the research firm felt that the more immediate project would likely be the MRT 3, as MRT 2 is already around 75% completed. The MRT 3/Circle Line is deemed vital in order to complete the loop and ensure ridership continues to grow, it said in a Sept 3 Market Strategy report.

As for HSR, the Cabinet had approved the project late last month, and negotiations with Singapore will follow. On this front, the project delivery vehicle MyHSR Corp recently launched two tenders to appoint consultants for the project, it said.

Where stocks are concerned, Gamuda Bhd, IJM Construction Bhd and Sunway Construction Group Bhd - which are regarded as bellwethers for the sector - are seen as some of the potential beneficiaries of the revival of infrastructure projects.

Additionally, the AllianceDBS sees potential new private finance initiative (PFI) projects in the water or solar energy space. It also expects a flurry of awards in Sarawak leading up to its state elections, which has to be called by September 2021.

Based on its channel checks, the research said the state is contemplating awards of some major projects such as Smart City, Oil and Gas City and Methanol Plant, on top of the trunk road, coastal road and water supply grid projects.

Kenanga Research said it has turned bullish on the construction sector since June and sees a “window of opportunity for the sector to perform”.

“With this (2QCY20) reporting season out of the way, the coast is clear and the immediate focus would be the anticipation of pump priming measures to be dished out in the Budget 2021 and 12th Malaysian Plan. Among key mega projects we are anticipating are MRT3, Pan Borneo Sabah, Sabah Sarawak Link Road and the HSR, ” it said in a recent report.

However, it cautions that the results for the August reporting season, which will reflect the peak of movement control order (MCO), may come in weak and this might deter investors.

Earnings-wise, the recently concluded 2Q (April-June) results marked an earnings trough for companies, which were impacted following suspension of works following the implementation of the MCO in mid-March to curb the spread of Covd-19.

Going forward, analysts expect subsequent quarters to improve as conditions normalise during the recovery MCO phase. While most project sites have resumed construction activities since May, construction margin may remain depressed in the near term as construction sites are still operating below optimal efficiency level because of the stricter operating procedures, they said.

In terms of orderbook, TA Research noted that most construction companies (under its coverage) are still carrying healthy outstanding order books and this would provide good earnings visibility to the companies in the near future.

During the 2QCY20, one of the meaningful job wins was IJM Corp bagging the proposed construction and development of an 11-storey retail mall and convention centre, which is estimated at RM864.7mil. The contract lifted IJM’s outstanding orderbook to RM5.5bil.

Elsewhere, a joint venture between Gamuda Australia and Laing O’Rourke had been shortlisted for the first stages of the A$20bil (RM60bil) Sydney Metro West project. The joint venture is one of three successful consortia shortlisted for the project’s first two major tunnelling packages. If successful, the project could be Gamuda’s largest project in Australia.

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