Sector catalysts include a faster-than-expected rollout of Mass Rapid Transit 3 (MRT3) and a potential bump-up in development expenditure allocation in 2024 and 2025 by the government, said RHB Research.
PETALING JAYA: Analysts have a “neutral” call on the construction sector ahead of the upcoming revised Budget 2023.
Sector catalysts include a faster-than-expected rollout of Mass Rapid Transit 3 (MRT3) and a potential bump-up in development expenditure (DE) allocation in 2024 and 2025 by the government in order to meet the RM400bil planned DE under the 12th Malaysia Plan (12MP), said RHB Research.
In a report to clients, the research house said it maintained its “neutral” call on the sector ahead of the tabling of Budget 2023 and with only RM2.1bil jobs awarded in January.
“We reiterate Kerjaya Prospek Bhd and Sunway Construction Group Bhd
as our sector top picks due to their diversification efforts in industrial-related jobs versus infrastructure and residential building work,” it said.
In the report, RHB Research noted that the rationalisation of Malaysia’s DE remains a point of contention.
“Our economics team sees limited possibility of significant tax policy reforms under the revised Budget 2023. We think MRT Corp Bhd’s detailed study on the MRT3’s track alignment could potentially affect around RM34bil worth of civil works in the pipeline for contractors,” it said.
Citing the Finance Ministry’s economic reports, it noted total 2021 and 2022 DE was around RM136bil, leaving around RM264bil for 2023 and 2025.
The earlier tabled budget saw RM95bil allocated for DE, inclusive of the RM14bil earmarked to redeem 1Malaysia Development bonds, which translates to a RM81bil core DE, it said.
“We remain watchful of the DE figure, as the government could scale down core DE in the absence of revenue collection methods such as the Goods and Services Tax or GST. “Nevertheless, the government could still raise DE later in 2024 and 2025 to meet the RM400bil planned expenditure under the 12MP.”
The research house suggested that private funding requirements for contractors could be tweaked higher to reduce the government’s immediate capital outlay.
“Recall that MRT3 civil work package tenders required contractors to fund at least 10% of the job value for the first two years.
“If such requirements were to remain for future projects, contractors with lean balance sheets could initially see their financing headrooms strained, in our view.”
Meanwhile, it said Borneo could see a higher revised allocation.
The sizeable presence of the Borneo block in the unity government may likely lead to a higher revised DE for East Malaysia, which saw an initial allocation of RM11.7bil under the previous budget, it said.
“The government has given preliminary approval for an additional RM1bil to upgrade Sabah and Sarawak’s border infrastructure
“Notwithstanding this, we think the bulk of the allocation may flow towards private small-sized contractors.”
