Construction counters recover on improved workflow prospects

Interests in the construction stocks are returning due to improving sentiment in the market


Construction stocks that were sold down post the 14th General Election (GE14) results have started to draw back investor interest as fears of project cancellation or suspension has given way to optimism of proceeding with some mega projects at a lower cost or scaled-down version.

Rakuten Trade Sdn Bhd research VP Vincent Lau said the interests in the construction stocks are returning due to improving sentiment in the market after the rampant selldown.

The construction sector stocks took the brunt of the shock election results because of fears of the impact on ongoing and proposed mega infrastructure projects.

The construction index on Bursa Malaysia fell sharply post elections from a close of 287 points on May 8 to a low of 194 points in early July before recovering to close at 226, points yesterday.

“The construction and piling jobs are coming in, resulting in the return and recovery of the sector’s counters,” said Lau.

The counters to benefit first from the positive newsflow are those that were hit the hardest post elections. Malaysia’s engineering and infrastructure giant Gamuda Bhd fell from RM5.10 on May 8 to a low of RM3 on the government’s move to suspend major upcoming rail projects.

The stock eased by five sen to RM3.85 yesterday and Lau expects Gamuda to go even higher.

“The company’s share price is recovering as investor sentiment has improved. The selldown was done on fears that Gamuda might not be the preferred project delivery partner for the Kuala Lumpur-Singapore high-speed rail (HSR) project as it would be shelved, but now with the possible return of the HSR project on a smaller scale, investors are having a relook at the counter, taking into account its other projects that are still ongoing,” Lau said.

George Kent (M) Bhd and Gabungan AQRS Bhd also suffered due to their political links to the former government and involvement in large infrastructure projects.

Upon the market’s opening post elections on May 14, Gabungan AQRS dropped from RM1.60 to RM1.12, and sustained selling saw the counter testing a low of 88 sen on the back of the new government’s plan to review mega infrastructure projects, like the East Coast Railway Link.

The company did not include any of those projects in its books, but is involved in works for the Sungai Besi-Ulu Kelang highway and Light Rail Transit 3 (LRT3), alongside Pusat Pentadbiran Sultan Ahmad Shah, mixed-development One Jesselton Waterfront in Sabah and also a development in Johor Baru. Gabungan AQRS rose two sen to RM1.40 at close yesterday.

George Kent, which is in a joint venture to build the LRT3, saw it share price dropping from RM3.94 on May 14 and to a low of 99 sen on July 11, before news on the government’s approval of the LRT3 project at a scaled-down version and lower valuation supported a price recovery was published.

The stock closed five sen higher yesterday at RM1.58, still well below its pre-election highs.

Cahaya Mata Sarawak Bhd (CMS) is another counter that has benefitted from a calmer market environment with the counter rising 23 sen yesterday to RM3.15, on expectations the company will still retain a bulk of its work contracts and projects.

CMS fell from RM4.13 to a low of RM1.74 a few days post GE14 due to investor perception that the company was politically aligned with the Barisan Nasional government.