PETALING JAYA: Although the termination of the Kuala Lumpur-Singapore High-Speed Rail (HSR) project is seen as a major setback for the construction sector, research analysts are maintaining their mixed ratings on the sector.
Kenanga Research is maintaining its “overweight” call on the sector, and pointed out that without the HSR, the government’s fiscal purse would be less tight, thus freeing higher allocations to other high impact projects such as the Mass Rapid Transit 3 (MRT 3).
“The Covid-19 recovery theme is set to grow in prominence in 2021 which would set the narrative for amplified share price reaction upon news flows amid a liquidity-filled market, ” it said.
It said contract awards which could spur excitement in 2021 are Large Scale Solar 4 (LSS4), Johor Baru-Singapore Rapid Transit System (RTS), East Coast Rail Link (ECRL), MRT3, Penang reclamation, Pan Borneo Highway in Sabah, and Sabah-Sarawak link road.
Also, Kenanga Research said there is potentially 1,200 megawatts (MW) more of LSS projects left after the LSS4 contracts are awarded.
As of 2020, Malaysia’s renewable energy (RE) mix is 9% against its 20% RE target by 2025.
To achieve the target, this will require an additional 5,787MW of RE supply based on the Energy Commission’s 2019 generation development plan – of which an estimated 2,700MW would be solar-related.
Stripping off LSS4’s 1,000MW to be announced in the first quarter of 2021, Malaysia will need to dish out an additional 1,700MW of new solar supply awards within 2021-2023 (assuming construction takes 18- 24 months).
These solar awards could either be in the form of Net Energy Metering (NEM) schemes or large scale solar projects.
Assuming 500MW is allocated to NEM schemes, there could potentially be 1,200MW for LSS packages from the year 2021 – 2023.
Kenanga Research saw strong rationale for the government to expedite LSS awards as these privately funded initiatives (PFIs) would be favourable to drive the economy especially when government’s debt-to-gross domestic product (GDP) ratio is currently high.
Meanwhile, it is also expected that Light Rail Transit Line 3 (LRT3) turnkey contractor MRCB-George Kent Sdn Bhd would recognise bumper profits in financial year 2021 as prior unrecognised profits would now be recognised given that the finalisation of LRT3 re-negotiations with many sub-contractors have been expedited in the second half of 2020.
In terms of actual on-the-ground progress on LRT3, works have been relatively smooth based on 40% achieved as of the third quarter of 2020 – in line with target progress.
Kenanga Research also believed that supportive policies such as the Home Ownership Campaign (HOC) and low interest rate environment would cascade to higher property launches, thus benefitting building contractors.
Within the building contractor space, Kenanga Research’s top pick is Kerjaya Prospek Group Bhd as it is currently trading at a discount to its peers; there is potential penetration into new construction niche such as solar and water contracting, and due to the Yakin Land property project (with gross development value or GDV of RM380mil to be launched in the first half of 2021 in North Kiara, potentially located near a future MRT3 station.
Meanwhile, TA Securities Research said it remained cautious on the near-term outlook for the construction sector.
The research unit is maintaining its “underweight” stance on the sector, due to the slower-than-expected rollout of new mega infrastructure projects since the last general election, government’s financial constraint, increasing risk from rising Covid-19 new cases, political instability, and the recent jump in steel bar price which negatively affects construction margins.
TA Securities Research also downgraded WCT Holdings Bhd to Hold with an unchanged target price of RM0.575.
Kenanga Research’s top picks with Outperform calls are Malaysian Resources Corp Bhd with a 67.5 sen target price, Kerjaya Prospek (target price RM1.50) and Sunway Construction Group Bhd (target price RM2.45).