KUALA LUMPUR: Government policy uncertainties in the implementation of public projects will continue to dampen sentiment on the construction sector, said Affin Hwang Capital.
The firm said the new unity government said it would review RM7 billion worth of flood mitigation projects that were supposed to be awarded through direct negotiations.
Affin Hwang gathered that several other mega infrastructure projects that were yet to be awarded, such as the Klang Valley MRT Line 3 (MRT3), were also being reviewed.
"However, it is positive to note that the government has preserved the sanctity of contracts and will continue with ongoing projects such as the East Coast Rail Link (ECRL).
"On toll highways, the new unity government has also signed supplementary concession agreements for the restructuring of IJM Corp's Lekas and Besraya highways based on terms negotiated with the previous government," it said.
Affin Hwang said the government was reviewing planned infrastructure projects such as the MRT3 to reduce costs, causing delays in the award of construction contracts.
The firm said the re-tabling of 2023 Budget on Feb 24 could provide indications on the implementation of these projects and those that would be prioritised.
"We understand that the federal government is looking to reduce its overall expenditure as part of its efforts for fiscal consolidation.
"There will also be cost savings by awarding public-sector projects through open tender.
"We believe the government will likely maintain an estimated development expenditure (DE) at RM85 billion-RM90 billion in 2023 to achieve its DE target of RM400 billion under the 12th Malaysia Plan 2021-2025," it said.
Affin Hwang reiterated a "Neutral" call on the construction sector given the potential delays in the roll out of major domestic infrastructure projects.
A potential positive re-rating catalyst for the sector is the acceleration in the implementation of the MRT3 project, it said.
"Our top Buys are Sunway Construction Bhd and AME Elite Consortium Bhd.
"Both companies are relatively less reliant on public-sector projects to replenish their order books and stand to benefit from strong demand for industrial properties," it said.