PETALING JAYA: The construction industry is likely to face a muted response ahead of the 15th General Election and Budget 2023.In a note to clients on the sector, CGS-CIMB Research said contract flow statistics from the Construction Industry Development Board (CIDB) pointed to a likely slowdown in the value and number of projects awarded for the remainder of the year.
“Job flow data shows signs of contract awards tapering off in the second half of financial year 2022, reinforcing our view that the construction industry is likely to see a muted response ahead of the impending general election and Budget 2023.
“As of August (year-to-date), the total value of contracts awarded amounted to RM74bil, which, if annualised, works out to RM111bil or an implied 15% year-on-year decline from 2021’s RM131bil.”
CGS-CIMB Research added that tenders for certain categories of government or private sector contracts may have been temporarily delayed.
The research house said that this could be due to the sharp increases in raw material costs and labour issues.
“We reiterate our ‘neutral’ call on the construction sector and continue to advocate selective exposure to contractors.”
The research house also said that it anticipated that the priority and project mix under Budget 2023’s development expenditure would focus on assisting and expediting ongoing infrastructure contracts.
CGS-CIMB Research added that despite the lifting of lockdowns and reopening of the economy since the fourth quarter of 2021, some were also negatively impacted by the rise in material costs, labour shortages and labour costs.
“We therefore would not discount the inclusion of selected stimulus measures to assist smaller contractors.
“For larger contractors, we believe new mega contract proposals beyond those that have been approved in the last six to 12 months are unlikely to be introduced in Budget 2023, given that the immediate focus is on the implementation of the RM31bil Mass Rapid Transit 3 Circle Line,” it said.
In the report, CGS-CIMB Research also said that in light of the uncertainties in the rollout of new larger-value contracts ahead of Budget 2023 and sustained sector headwinds pre-GE15, it continues to prefer contractors with themes that are based on asset divestments.
Theses include highway asset sales, those with stronger balance sheet positions with special dividends in the pipeline and those that have an improving order book growth outlook.
Additionally, CGS-CIMB Research prefers contractors that have the advantage of clinching tier-1 MRT 3 civil works packages and those that have a strong overseas order pipeline.
“In the big-cap space, we continue to prefer Gamuda Bhd
and IJM Corp Bhd.
“In the small-cap space, HSS Engineers Bhd remains our preferred pick,” CGS-CIMB Research added.
