KUALA LUMPUR: The local construction sector will likely be dominated by tender projects worth RM57.3 billion for the East Coast rail Link (ECRL), Pan Borneo Sabah (PBS), Sarawak Coastal Road Network (SCRN) and Second Trunk Toad in the first-half (1H) of this year.
Hong Leong Investment Bank (HLIB) said other material developments related to the construction sector in 1H of 2020 included the ramp up of Light Rail Transit 3 (LRT3) project worth RM16 billion and potential signing of project delivery partner agreement for Penang Transport Master Plan (RM24 billion) that could pave the way for physical works on Bayan Lepas LRT (RM8.4 billion).
“High-Speed Rail (HSR) and Mass Rapid Transit 3 (MRT3) have recently been hitting the headlines with the former mentioned by Prime Minister Tun Dr Mahathir Mohamad as likely to go ahead post-fat trimming,” it said, adding that the government was considering reviving MRT3 with a decision likely in mid-2020.
The firm maintained a “neutral” call on the construction sector, despite the impending recovery due to the strong rally post-revival of ECRL and Bandar Malaysia.
“We believe current valuations have baked in the recovery prospects capping the potential of a broad sector rally.
“Nonetheless, positive news flow and healthy order book levels (average cover: 4.8 times) should provide downside risk protection,” HLIB said in a report today.
The firm noted domestic contracts totalled RM11.0 billion last year, declining 40 per cent year-on-year. Of the total, infrastructure jobs made up 33 per cent of domestic contracts with the balance from building jobs.
“The decline in contracts value and lower proportion of infrastructure works were mainly due to holding back or downsizing of infrastructure projects post General Election 2014.”
It said Sarawak-related domestic contracts amounting to RM964 million had been dished out, with a significant portion being infrastructure related (78 per cent).
“We reckon momentum of project flows in Sarawak will reaccelerate after slowing down in the second half of 2019 as the next state elections must be held before September 2021,” it added.
HLIB’s top picks of construction companies include Sunway Construction Group Bhd and Hock Seng Lee Bhd, with both receiving a “buy” call with a target price of RM2.30 and RM1.64 per share respectively.