KUALA LUMPUR: The construction sector's performance in the first quarter of 2024 (Q1 2024) fell short of expectations, with most contractors' revenue aligning with earlier forecasts due to stable labour conditions and building material prices, according to RHB Investment Bank Bhd (RHB Research).
However, the residual impact of projects secured prior to or during the pandemic, which had cost overruns, was still experienced by some contractors, it said in a note.
"Nevertheless, most players charted earnings growth, and we note that our earlier estimates were too optimistic. All in all, we view that contractors should continue booking better progress billings, as evidenced by the total value of work done at RM36.8 billion, the highest in 17 quarters," it said in a note.
The total value of construction work completed in Q1 2024 increased by 14 per cent year-on-year (YoY) and 7.8 per cent quarter-on-quarter (QoQ).
RHB Research said contract rollouts (private and government jobs) have generally been active.
so far, with RM69.9 billion worth of projects awarded in the first five months of this year, which was 37 per cent YoY higher than the RM50.9 billion recorded in the same period a year ago.
The firm said that a major catalyst for the construction industry would be a quicker-than-expected rollout of other mega projects such as Mass Rapid Transit 3 (MRT3), which may see its debut in the first half of 2025 (1H 2025).
The firm believes that MRT Corporation is expected to finalise the land to be acquired for the said project in 1H 2024.
"While the MRT3 project may likely be awarded some time in 1H25, we believe that there would be ample jobs for contractors to vie for.
"As for the Kuala Lumpur-Singapore High Speed Rail (HSR), we expect announcements on the shortlisting of consortiums for the request for proposal stage to be by the end of Q3 2024, subject to the government's approval post-evaluation by MyHSR Corp," it said.
Upcoming anticipated projects that would drive the sector include Penang Light Rail Transit (LRT) Mutiara Line, the remaining packages of Pan Borneo Highway Sabah phase 1B, and phase 2 of Pan Borneo Highway.
Sarawak, flood mitigation projects, and new data centres across Selangor and Johor.
RHB Research said that investors should prioritise construction companies with a proven track record in local public infrastructure projects, strong financial stability, and substantial exposure to foreign markets or private sector jobs.
These attributes are critical for managing risks such as unexpected labor shortages, delays in public infrastructure projects in Malaysia, and volatile building material prices, it said in a note.
RHB Research has maintained an 'overweight' rating for the sector, with top picks being Sunway Construction Group Bhd (SunCon), Gamuda Bhd, and Kerjaya Prospek Group Bhd.