PETALING JAYA: The construction sector could see gradual improvement in contract flows this year as the country transitions into an endemic phase starting from April 1.
Hong Leong Investment Bank (HLIB) Research said the ongoing rollouts of existing projects like the East Coast Rail Link (ECRL), Pan Borneo Highway Sabah & Sarawak and Johor Baru–Singapore Rapid Transit System could support job flows in 2022.
“We also look forward to the rollout of Sarawak Metro which costs RM6bil in the second half of 2022.
“Should things proceed smoothly, early stage awards for the Mass Rapid Transit (MRT 3) Circle Line could come in late 2022,” it said in a report yesterday.
The open tender process for the MRT 3 project is estimated to start in May, while the award for the turnkey contracts could happen in the fourth quarter of this year.
However, one concern raised is the soaring raw materials prices and its ensuing impact on various project rollouts.
“From what we gather, recent inflationary pressures have resulted in sharply higher steel bars and cement prices in the first quarter (1Q) of 2022,” HLIB said.
It estimates that the price of steel bars has surged about 20% in 1Q of 2022 compared to the same quarter last year, while cement prices have spiked by 40%.
HLIB pointed out that the RM2.2bil worth of contract awarded in 1Q of 2022 was a 54% decline from the same quarter last year.
About 66% of contracts were from the private sector for buildings and townships projects, 14% from solar-related jobs, and the remaining were from government-related entities.
Notable contract wins in 1Q of 2022 include a building construction to Kerjaya Prospek Group Bhd (RM710mil), mixed development project to TCS Group Holdings Bhd (RM255mil) and city mosque development to Ahmad Zaki Resources Bhd (RM205mil).
“Missing in action versus comparative quarters are public sector-related contracts like water, roads, airports and public buildings. It is worth noting companies under our coverage were void of contract wins in 1Q of 2022.,” the research firm said.
Moving forward, HLIB said it cautiously expects to see contract flows gradually improving.
It maintains a “neutral” call on the construction sector due to soaring materials costs that could possibly impact job flows and margins.
“We continue to expect sector coverage earnings to recover this year but downside risks versus our expectation is growing should recent steep costs escalation persists.
“Post the MRT3 driven rally starting mid-March, sector valuations have re-rated upward to 13.2 times forward price-earnings ratio and 0.7 times price-to-book ratio,” it said.