PETALING JAYA: The construction sector will benefit from the 38% jump in Budget 2021 development expenditure allocation to RM69bil although concerns about execution risks and political uncertainties remain, according to research analysts.
Maybank Investment Bank (IB) Research said it remained positive on the construction sector, as the surge in gross development expenditure presents sizeable order book replenishment opportunities to contractors over the medium term.
The research unit said the construction sector’s real output is expected to expand by 13.9% in 2021, after an anticipated 18.7% fall in 2020.
Construction of the Johor Baru–Singapore Rapid Transit System (JB-SG RTS) will start, while work on existing key projects like the Gemas-Johor Baru electrified double-tracking (EDT) rail project, Pan Borneo Highway, phase one of the Klang Valley Double Tracking (KVDT1) project, Klang Valley Mass Rapid Transit Line 2 (KVMRT2), Light Rail Transit Line 3 (LRT3), West Coast Expressway (WCE) and Coastal Highways in Sarawak will continue.
The KVMRT3 project will proceed, and so will the Kuala Lumpur-Singapore High-Speed Rail (HSR) project, subject to further discussions with Singapore.
Maybank IB Research also noted the Medium-Term Fiscal Framework (MTFF) 2021-2023 has been revised to take into consideration the impact of Covid-19.
Under the revised MTFF, the government’s projected gross development expenditure allocation for 2021-23 is RM212bil.
With RM69bil already set aside for 2021, that leaves RM143.5bil for 2022-2023 or RM72bil per annum which implies at least sustained, if not higher infrastructure roll-outs over the medium term.
Meanwhile, CGS-CIMB Research opined that no immediate allocation is required for KVMRT3 as the project has not been approved with revised cost (original cost was RM45bil in 2018).
It said the project may involve 18 months to two years in lead time before tenders can be called, going by the experience of KVMRT1 and KVMRT2.
CGS-CIMB Research retained its “neutral” call on the building materials sector as the limited positive impact on demand recovery from new small and medium scale projects may be offset by the longer lead-time for larger contracts.
Risks to the implementation of contracts under Budget 2021 is the slow procurement of tenders as a result of the ongoing conditional movement control order.
Affin Hwang Capital Research said potential beneficiaries of the KVMRT3 and Kuala Lumpur-Singapore HSR projects are HSS Engineers Bhd, Gamuda Bhd, Malaysian Resources Corp Bhd (MRCB), IJM Corp Bhd, Sunway Construction Group Bhd, WCT Holdings Bhd and YTL Corp Bhd.
HSS Engineers Bhd is involved in the projects under Iskandar Regional Development Authority and Northern Corridor Economic Region, and Pan Borneo Highway in Sabah.
Hence, HSS Engineers could win additional contracts with the additional allocations to develop these regions.
Meanwhile, Gabungan AQRS Bhd is bidding for Pan Borneo Highway in Sabah packages but not the Serusop-Pituru stretch mentioned in Budget 2021.
Taliworks Corp Bhd and HSS Engineers Bhd are potential beneficiaries of water supply projects to be implemented.
MRCB is the Project Delivery Partner (PDP) for Kwasa Damansara.
The continuation of this project will drive earnings growth for MRCB in the long run.
Affin Hwang Capital Research said its concerns are execution risks and political uncertainties, given the prospects of an early election going into 2021.
UOB Kay Hian Research also noted that despite the big allocation hike for development expenditure under Budget 2021, construction stocks have hardly budged.
The research unit said this was because much of the allocation hike relates to smaller projects which may not significantly benefit the listed companies, or that investors remained sceptical that these projects would be expedited (for example, the remaining contract parcels of Pan Borneo Highway in Sabah have not kicked off for the past three years).
It said potential beneficiaries of the RM1.3bil allocation for construction and upgrading of rural roads for 920km include Protasco Bhd, Vizione Holdings Bhd, Cahya Mata Sarawak Bhd, and Hock Seng Lee Bhd.
As for affordable and low-cost housing projects, potential beneficiaries include Inta Bina Group Bhd, Vizione, and Vertice Bhd.
Maybank IB Research’s preferred stock is Gamuda which it expects to benefit from the KVMRT3 roll-out.