KUALA LUMPUR, April 17 — Hong Leong Investment Bank Bhd (HLIB) has maintained its ‘neutral’ stance on the construction sector amidst high key materials prices, a possible dent in risk sentiment from upcoming state elections and lack of project pipeline beyond the Mass Rapid Transit Line 3 (MRT3).
In a note today, the research house said that the sector had a strong start this year, with domestic contract awards totalling RM7.06 billion in the first quarter of 2023 (1Q 2023), an increase of 215 per cent year-on-year.
It said the contract wins were boosted by previously delayed awards due to the 15th General Election, lower volatility in material prices and dissipating labour shortage.
“The quarter was private sector-driven, accounting for 80 per cent of contract values, while public infra was relatively slow with Budget 2023 just recently passed,” it said.
HLIB also cited several notable contracts outlined under Budget 2023, including various highway widening works in Johor, airport expansion jobs in Penang and Subang worth over RM2 billion, and hospitals — the most notable one being in Sarawak, worth RM1 billion.
It had also noted the Sanglang Phase 1 development worth RM200 million awarded to Citaglobal Bhd, adding that 1Q 2023 also turned out to be a significant quarter for Sunway Construction Group Bhd with RM2.3 billion worth of contract wins.
“Additionally, we expect to see more opportunities in flood mitigation projects worth RM13 billion to be awarded starting June this year, and more importantly, the Klang Valley MRT3 project somewhere in the second half of this year.
“Meanwhile, the government’s decision to put more projects to tender will see opportunities opening up for listed contractors,” it said, adding that its cumulative 2023 earnings forecasts for the sector is a muted 3.9 per cent.
It noted that key catalysts for the sector would be mega project revivals, while risks include MRT3 cancellation, prolonged elevated materials prices, labour shortage and political instability. — Bernama