RHB: Possible overhang for construction sector as GE15 looms

• RHB Research noted that a negative outcome would be a hung Parliament, which could fuel uncertainty for the sector’s prospects.

KUALA LUMPUR (Sept 9): There is a possible overhang for the construction sector amid the looming 15th general election (GE15), said RHB Research.

“De-risking activity could intensify as we approach closer to the upcoming general election with market talk suggesting that GE15 could happen as early as 4Q22 (fourth quarter of 2022) after the tabling of the 2023 budget was brought forward to Oct 7 (from Oct 28).

“Nevertheless, re-rating catalysts for the sector could arise after GE15. Assuming no substantial changes in policies take place post GE15, such [a] situation could bode well for ongoing and future project implementation,” the research house said in a note on Friday (Sept 9).

It noted that a negative outcome would be a hung Parliament, which could fuel uncertainty for the sector’s prospects.

“We like names from the small and mid-cap construction space such as Kerjaya Prospek Group Bhd and Sunway Construction Group Bhd. Overall, we believe they have supportive catalysts, backed by stable orderbook replenishment rates, and robust balance sheets,” it added.

On the other hand, RHB said a pre-election pump priming theme could materialise but may be skewed more towards smaller scale contractors.

It said the government’s limited fiscal headroom is evident from the ratio of government debt to gross domestic product of 63.8% at the end of June 2022, compared with 63.4% at the end of December 2021.

Large-scale projects could still be announced but would need private funding arrangements, said RHB.

“However, the risk of low private sector construction participation could increase if contractors, with previously strong balance sheets, could no longer accommodate such funding requirements if they take up more projects further down the road,” it said.