Private sector to drive growth in 4Q

“Going into the final quarter, we reckon job flows will continue to be dominated by the private sector with contracts from factories and data centres,” HLIB Research said.

PETALING JAYA: Private sector contracts will likely continue dominating the construction sector in the fourth quarter, while job flows from the public sector will likely remain sluggish in the final three months of the year.

Maintaining its “neutral” stance on the construction sector, Hong Leong Investment Bank (HLIB) Research noted domestic contract awards during the third quarter (3Q) of 2023 saw a decline of 70% quarter-on-quarter and 72% year-on-year (y-o-y) to RM2.28bil.

“Awards saw downward sequential normalisation in 3Q23 due to state elections in August as well as the absence of large contract rollouts. Public infrastructure jobs remained sluggish in 3Q23,” the research house said.

“Going into the final quarter, we reckon job flows will continue to be dominated by the private sector with contracts from factories and data centres,” it added.

Nevertheless, HLIB Research said it would expect to see some packages from the Johor-Singapore rapid transit system in the final quarter.

Other potential projects would be flood mitigation works, developments on the renewable-energy front and airport expansion jobs.

It said high-impact projects like Mass Rapit Transit 3 (MRT3), Penang Light Rail Transit and Pan Borneo Highway Sabah could see further development in 2024. The upcoming Budget 2024, which will be unveiled next Friday, should provide further clarity, it added.

Overall, HLIB Research said it preferred to take a longer-term view on the sector, and remained selective in terms of investing, with preference for companies with a strong edge in tenders as well as pipeline for direct-negotiated projects.

HLIB Research’s top picks were Gamuda Bhd, with a target price of RM4.93, and Sunway Construction Group Bhd (SunCon), with a target price of RM2.10.

“Both have contract levers aside from the MRT3 project that could lead to a more sustained orderbook growth phase. On top of this, we expect both companies to sustain/enter a stronger earnings cycle,” it said.

HLIB Research pointed out that despite the normalisation in 3Q23, cumulatively, domestic awards were 35% y-o-y higher for the nine months to September 2023.

This was driven by Gamuda’s RM3.7bil reclamation contract and a flurry of contracts secured by SunCon in the first half of 2023.

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