KUALA LUMPUR: Building materials price headwinds is not going to be a huge risk to the construction sector as it is still manageable, said MIDF Research.
The firm said this was still manageable with margin protection measures such as variation-of-price clauses, allowing part of the additional cost to be passed on to clients.
Even if such elements were not available, some contracts would have priced in potential cost inflation or negotiations would have been engaged with clients to reprice contracts or to put in place huge buffers for possible spike in prices, it added.
"We expect margins to continue to improve in fourth quarter (Q4) 2022 onwards though a dampener may be due to higher labour cost due to a shortage of foreign workers as contractors are paying more for critical projects.
"But we expect this situation to improve moving forward as construction is among the sectors that are allowed to hire from all 15 permitted source countries," MIDF Research said.
MIDF Research reiterated its positive recommendation on the construction sector in view of the manageable cost headwinds and the potential rollout of infrastructure projects in Malaysia.
This is also supported by positive developments being driven by the upcoming MRT3 tender awards by the end of 2022.
"Prospects are also looking good in Sarawak with positive job flows expected, especially due to its RM100 billion capital injection by 2030.
"We are also looking forward to the potential revival of the axed KL-Singapore High Speed Rail (HSR), which may be a key focus area of the new government after the general election.
"With all the ongoing and upcoming developments, we are staying Positive on the construction sector, with a preference for companies with robust balance sheets and strong overseas presence, namely Gamuda Bhd, IJM Corp Bhd and Sunway Construction Bhd, all of which are front-runners for the MRT3 main contracts," it added.