KUALA LUMPUR: Given the uncertainties over the retabling of Budget 2023, RHB Research said investors should focus on contractors that have reduced their dependency on government-related projects.
In a sector update, the research firm said contractors that have ventured into different types of projects will be better able to shield themselves from any downsizing of public infrastructure projects arising from the revamp of Budget 2023.
RHB, which has a "neutral" recommendation on the construction sector, said Kerjaya Prospek Bhd and Sunway Construction Group Bhd are its two top sector picks for their ability to secure more industrial and data centre jobs respectively.
It said Kerjaya Prospek's framework arrangement with Samsung C&T enables it to secure more industrial jobs, backed by its net cash pile.
"Industrial properties are expected to record better growth – especially with China’s reopening – that could likely attract more foreign direct investments (FDIs) into the country," it said in a sector update.
Meanwhile, RHB favours Sunway Construction for its plans to venture into local data centre construction jobs, which are usually dominated by private foreign contractors like Takenaka Corp.
However, the research firm noted some key risks including the potential labour shortage that may lead to extension times for data centre projects, which have shorter timelines, and intensified competition from other contractors.
According to RHB, the Budget is expected to be revamped from many aspects, which could see a downwards revision or reallocation of RM95bil in development expenditure tabled in the previous Budget.
That being said, the sizeable presence of the Borneo block in the unity government will likely have positive implications in terms of higher revised development expenditure for Sabah and Sarawak.
As at Jan 20, the government has given preliminary approval for an additional RM1bil allocation to upgrade the border infrastructure in Sabah and Sarawak.
"Notwithstanding this, we believe the bulk of the allocation may flow towards smaller-sized contractors that are not publicly listed," said RHB.