Analysts see possible minor reviews, delay in MRT3 awards and tenders to late 1H2023

• Post election, it noted, there are uncertainties over the timing of mega infrastructure rerating catalysts.  

KUALA LUMPUR (Jan 9): Tenders and awards for the Mass Transit Rapid 3 (MRT3) may be slightly delayed from earlier expectations in the first quarter of 2023 to the later part of the first half of the year (1H2023), said CGS-CIMB Research.  

In a note on Monday (Jan 9), the research house said three diversified contractors, namely Gamuda Bhd, IJM Corp Bhd and Malaysia Resources Corp Bhd (MRCB), are of the collective view that the MRT3 project would proceed.  

However, it said, most companies did not discount the possibility that the project may be subjected to minor reviews or refinement in costing, and in the worst case, it could be slightly delayed.

“IJM Corp and MRCB have, via their own consortiums, submitted bids for all three civil works packages, while Gamuda is vying for one tender for the largest underground portion,” said CGS-CIMB.  

Meanwhile, Hong Leong Investment Bank (HLIB) Research said the much-anticipated MRT3 civil contracts ultimately did not materialise in December due to the 15th general election. Post election, it noted, there are uncertainties over the timing of mega infrastructure rerating catalysts.  

Both CGS-CIMB and HLIB kept their "neutral" rating for the construction sector.  

CGS-CIMB maintained its "neutral" sector rating, but still prefers stocks with the following themes: i) strong domestic and overseas execution track records; ii) potential front runners for sizeable MRT3 packages; iii) beneficiaries of asset restructuring/monetisation; and iv) aggressive strategies to grow the renewable energy recurring income base.

Gamuda ("add": target price or TP: RM4.69) remains as the research house's top pick, as its regionalisation strategies are well ahead of other contractors, while IJM Corp ("add": TP: RM2.15) is seen as a sector big-cap laggard, with an asset monetisation or special dividend angle.

HLIB, on the other hand, said its cumulative 2023 earnings forecasts for the sector see growth at a muted 2.8%.  

“Despite this, sector valuations are undemanding at 12.3 times forward price-earnings (five-year mean), and 0.6 times price-to book value (-1 standard deviation in the five-year range). 

“Our top picks are Gamuda ("buy"; TP: RM4.15) and Sunway Construction Group Bhd ("buy"; TP: RM2.06), due to their lower reliance on domestic public infrastructure spending,” it added.