RHB IB keeps 'overweight' on construction sector, projects upswing in contract roll-outs throughout 2024

• RHB IB outlined potential project awards for the first half of 2024, encompassing flood mitigation projects, the Penang Light Rail Transit (LRT), Pan Borneo Highway Sabah's Phase 1B, and the reinstatement of five LRT3 stations.

KUALA LUMPUR (Jan 3): RHB Investment Bank Bhd (RHB IB) has maintained its "overweight" rating of the construction sector, projecting an upswing in contract roll-outs throughout 2024.

In a sector update on Wednesday, RHB IB noted a notable 22% year-on-year decrease in project awards to contractors in 2023, falling from RM163.2 billion in 2022 to RM127.4 billion, as reported by the Construction Industry Development Board.

Despite this decline, the research house perceives it as a transient setback, anticipating a revival in contract roll-outs supported by the government's earmarked RM90 billion development expenditure (DE) for 2024.

Notably, 21% of the DE is earmarked for the transport sub-sector, representing an increase from the 18% allocated in 2023.

RHB IB outlined potential project awards for the first half of 2024, encompassing flood mitigation projects, the Penang Light Rail Transit (LRT), Pan Borneo Highway Sabah's Phase 1B, and the reinstatement of five LRT3 stations.

Additionally, focus on the Mass Rapid Transit 3 (MRT3) project is underway, with land acquisition processes expected to lead to awards in the fourth quarter of 2024.

With the Bursa Malaysia Construction Index trading at 13 times price-earnings, slightly above its 10-year mean of 12.7 times, the research house views this as an attractive entry point, especially considering the commendable catalysts expected for the sector.

Anticipated catalysts for the sector include increased participation of Malaysia-based contractors in Indonesia's new capital project. Companies like IJM Corp Bhd are eyeing significant projects, including the Nusantara state civil servant housing project valued at approximately RM1 billion.

Additionally, the research house said the proposed three lines of the Johor Bahru LRT present opportunities, with the Johor government expected to have submitted the project's proposal to the federal government in late November 2023.

RHB IB's top picks for the sector include Gamuda Bhd, with a target price (TP) of RM5.66, Kerjaya Prospek Group Bhd (TP: RM1.71), and Sunway Construction Group Bhd (TP: RM2.16), with "buy" calls for all three counters.

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