Building sector comes into focus

Cautious approach: A construction site in Kuala Lumpur. The sector is further subjected to higher operating risks. ─ Bloomberg

PETALING JAYA: All eyes will be on the outlook of the local construction sector as the tabling of the 12th Malaysia Plan (12MP) hangs in the balance due to the declaration of the nationwide state of emergency until Aug 1.

In light of this, AmInvestment Bank Research has an “underweight” outlook for the local construction sector over the next six to 12 months.

“It has been close to a month since the suspension of Parliament following the declaration of a state of emergency nationwide.

“However, it is still unclear if the tabling of the 12MP (2021 to 2025) would be postponed to another date or the government would roll out the five-year development plan for the nation in the absence of the scrutiny by Parliament, ” it said in a report yesterday.

As a result of the uncertainty surrounding the 12MP, AmInvestment Research said it is maintaining its view that the government will have very limited room for fiscal manoeuvre, given the elevated national debt that has been weighed down further by the economic impact of the pandemic, as well as the massive relief spending to cushion the economic impact of the pandemic.

“All these have culminated in Fitch Ratings’ December 2020 downgrade of Malaysia’s long-term foreign-currency issuer default rating to BBB+ from A-, on the heels of S&P Global Ratings’ June 2020 downgrade of Malaysia’s outlook to negative from stable.

“We believe the recent termination of the KL-Singapore high-speed rail project should serve as a wake-up call to the market.”

Operationally, the report said construction players are subject to higher operating cost and lower efficiency due to restrictions on working hours and worker density on the site.

It noted that construction firms are also subjected to additional expenses incurred in the upgrading of dormitories for foreign workers, in compliance with the Workers’ Minimum Standards of Housing and Amenities Act 1990.

The report also said construction players are further subjected to higher operating risks.

“The higher operating risk is due to the potential stop-work order or enhanced movement control order on the dormitory in the event of Covid-19 infections, shortage of foreign workers as borders remain largely closed and the policy to reduce the country’s reliance on foreign workers.”

Amidst the uncertainty in the rollout of public infrastructure projects locally, AmInvestment Research said a number of players have ventured or returned to overseas markets.

“For instance, Sunway Construction in 2020 bagged two highway projects worth more than RM800mil in India on a hybrid annuity model, while Econpile secured a US$85.7mil (RM347.6mil) piling and substructure work subcontract for an integrated entertainment complex in Phnom Penh, Cambodia.

“Meanwhile, Gamuda has been shortlisted for two tunnelling packages of the A$20bil (RM60bil) Sydney Metro West and the A$2.6bil (RM7.8bil) Sydney M6 motorway in Australia.”

The research house added that it may upgrade its underweight call on the sector to “neutral/overweight” if the government decides to forge ahead with the implementation of key public infrastructure projects, despite the weak fiscal position.

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