Absence of new infrastructure projects a dampener on construction sector, says RHB Research

• Meanwhile, the potential reduction in project cost for the MRT3, from RM50.2 billion to under RM45 billion, is not sizeable, said the analyst, adding that the uncertainty in terms of the timeline remains a point of concern for contractors given the lack of other large infrastructure projects. 

KUALA LUMPUR (March 6): RHB Investment Bank Bhd has maintained its "neutral" stance on the construction sector, naming Kerjaya Prospek Group Bhd and Sunway Construction Group Bhd (SunCon) as its top picks, as these two companies can weather the lack of public mega infrastructure projects. 

It has "buy" calls for both stocks, with target prices of RM1.48 for Kerjaya Prospek and RM2.07 for SunCon, according to the research house in a note on Monday (March 6). 

Its analyst Adam Mohamed Rahim said the lack of new infrastructure projects in the pipeline, aside from the Mass Rapid Transit 3 (MRT3), could continue to dampen construction sector sentiment, in addition to the rising cost of building materials, such as steel bars, which have reversed their downward trend.

With these points in mind, he said, investors should adopt a tactical stance on the sector, amid the lack of fresh new mega infrastructure projects and further contract delays. 

“Companies such as Kerjaya Prospek (via its partnership with Samsung C&T) and SunCon have ventured into the industrial building segment, namely factories and data centres, which fetch higher margins compared to normal construction projects. 

“Moreover, Amazon.com Inc’s plan to invest RM25.5 billion in Malaysia by 2037 may excite the data centre space, as the investment includes cloud computing infrastructure. 

“Such strategies enable these contractors to diversify their order book exposure, in light of the lukewarm sentiment facing the public infrastructure space,” said Adam. 

Meanwhile, the potential reduction in project cost for the MRT3, from RM50.2 billion to under RM45 billion, is not sizeable, said the analyst, adding that the uncertainty in terms of the timeline remains a point of concern for contractors given the lack of other large infrastructure projects. 

“The timeline to complete the said cost study may take three to five months, by our estimates. With the main contractors having to put up with a longer wait, tenders for subcontract packages may be pushed even further down the line,” Adam added.