Laying the tracks of recovery for construction

Mudajaya Group Bhd managing director and chief executive officer James Wong told StarBiz that the sector would still experience challenges with tightened standard operating procedures emanating from the spread of the virus among foreign workers, which would impact productivity and preventive cost.

PETALING JAYA: The year 2020 has been a total washout year for the construction industry and players in the sector were rather relieved to have sailed through the headwinds into 2021.

A better year is definitely expected with the resumption and roll outs of various public and private sector projects but how significantly positive it would be, depended on the policies and projects that will be announced by the government.

The passing of Budget 2021 was the first step towards a positive start in 2021 with a RM37bil direct allocation towards the sector.

The focus for the next stage is the 12th Malaysian Plan (12MP), which will chart out the government’s development plans over the next five years.

Construction and infrastructure analysts were quite reserved on the bullish outlook for the sector in 2021, as they await further clarity on the negotiations and timeliness of mega infrastructure projects.

Assuming all is well that ends well, rail will be the 2021 buzzword for the construction sector as industry players vie to get a piece of the MRT 3, High Speed Rail (HSR) and East Coast Rail Link (ECRL) cakes.

As an analyst pointed out, amidst the uncertainties in rolling out mega projects and the political scene, something has to be kick-started to give the economic recovery an extra boost with the multiplier effect from construction activities.

“There are a lot less uncertainties on what the direction is now. Whether you like it or not, whoever that takes on the government machinery today has to be looking at the contracts, which one to roll out and which is the easiest to roll out.

“In the second half of 2021, I believe everyone will be looking at how the MRT 3 will be kick started, ” he told StarBiz.

He added that the base case was that jobs would come back but the caveat to that was the timing of the jobs, whether it would be spread out or accelerated in 2021.

“Like the MRT 3 and the HSR, there are still a lot of ifs, a lot of unanswered questions.

“You can already see some share prices reacting positively ahead of whatever it is that we are waiting for in terms of news flows and announcements from the government, ” the analyst said, adding that some construction counters were still down year-to-date, suggesting a good opportunity for a recovery punt.

AmInvestment Bank Research said in a report earlier this month that the earnings outlook for the industry players is weak.

On one hand where the condition of the construction market did not foster price power as job-hungry contractors undercut each other for limited new contracts in the market, the other would see them being subjected to higher operating cost and lower efficiency due to restrictions on working hours and worker density on the site.

This included additional expenses incurred in upgrading the dormitory for foreign workers and higher operating risk due to potential stop-work orders, enhanced movement control order and shortage of foreign workers.

“We maintain our view that the government will have very limited room for fiscal manoeuvre in 2021, given the elevated national debt, even before the pandemic.

“The government’s fiscal position has been weighed down further by the economic impact of the pandemic, including reduced petroleum revenues as well as the massive relief spending to cushion the economic impact of the pandemic, ” the research house said.

Mudajaya Group Bhd managing director and chief executive officer James Wong told StarBiz that the sector would still experience challenges with tightened standard operating procedures emanating from the spread of the virus among foreign workers, which would impact productivity and preventive cost.

He also stressed that the freeze on recruitment of new foreign workers has posed a major challenge to the sector.

“The acute shortage of workers needs to be addressed with authorities urgently as project roll-out increases in 2021.

“The industry is gradually seeing more project awards from the public sector like the Public Works Department (JKR) for road and medical-related facilities projects.

“The private sector, with projects focusing on logistic warehousing and data centre facilities, are also on the rise, ” he said.

He added that the power utility sector would offer construction work opportunities with the roll out of combined-cycle gas power plants in Pulau Indah and Kulim that will commence work next year, coupled with contracts from renewable energy projects such as Large Scale Solar @ MEnTARI and the Sustainable Energy Development Authority’s mini hydropower projects.

Wong also pointed out that the sudden and unanticipated rise in material prices, particularly steel and copper, has created a shock to the industry.

“Profit margins will be eroded for contractors who have no recourse to claim for variation of material prices, ” he said.

Meanwhile, CGS-CIMB Research said in its Malaysia Strategy Report recently that it expected that pace of contract tenders to normalise in 2021 following the delays caused by lockdown measures in 2020. It also anticipated an active contract award period in the second half of 2021.

“The RM37bil direct allocation from Budget 2021 should arrest the sector’s contract downturn phase, underpinning the Finance Ministry’s forecast 13.9% year-on-year construction sector gross domestic product growth in 2021.

“However, this is unlikely to accelerate an upcycle in mega contracts, in our view, as new high-multiplier projects have yet to be approved, ” it said.

The research house expected more revelations on the implementation plans for MRT 3 and HSR in the first half of 2021, which should reveal the contracts’ targeted milestones in the 12MP.

CGS-CIMB did not anticipate the awards of new mega-rail contracts to materialise in 2021, as it would typically take a year to a year-and-a-half from the project approval stage before the tender and award phases.

“This suggests that potential higher-value contract awards in the pipeline would only come from the delayed civil works packages of the ECRL, the balance scopes of work for Pan Borneo Highway in Sabah, civil works for the Johor Baru-Singapore Rapid Transit System, work package contracts for the Iskandar Bus Rapid Transit and various roads and bridges contracts in Sarawak under Budget 2021, ” it said.

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