Will this be the day for construction stocks?

Construction is expected to be among the major beneficiaries as the sector has wide-ranging multiplier effects, says analyst


THE construction, selected services and agriculture counters could get the much needed boost in a prolonged and dismal market when the government tables Budget 2020 today.

The local stock market has been in the doldrums with the main benchmark index recording 8.2% lower year-to-date (YTD) and plunging below the 1,574 points last recorded in August 2015. The market closed yesterday’s trading at 1,551.87 points.

Analysts expect Budget 2020, which will be tabled today, will shine on the construction sector, an industry which has for years benefitted from an expansionary development spending.

The prolonged China-US trade war has hurt global growth and internal spending is seen by many as the cushion to prevent a larger fallout from the tariff war between the world’s two largest economies.

MIDF Amanah Investment Bank Bhd head of research Mohd Redza Abdul Rahman said the construction sector is expected to be among the major beneficiaries as the sector has wide-ranging multiplier effects.

“Infrastructure work will be emphasised as development expenditure will be net positive to the economy.

“More contract awards will be given to jump-start other portions of the Light Rail Transit Line 3 (LRT3), Mass Rapid Transit Line 2 (MRT2) and East Coast Rail Link (ECRL) constructions, and improve or enhance infrastructures (roads, water, electricity) in the rural areas,” he told The Malaysian Reserve (TMR).

Mohd Redza added that initiatives to promote innovation and increase efficiency of the public and private services are also important to optimise spending and encourage higher value-added economic activities that could expand the marketability of our export products, especially in penetrating new markets and increasing the market share of existing markets.

“We have seen a weakening exports trend in the past few months affecting our exports and that’s why we need to diversify our export destinations (finding new markets). That will help mitigate the expectation of global growth decline.

“And also probably look at reducing the import bills by enhancing the contribution and efficiency from the agriculture sector through employing and promoting the use of new technologies to increase output and farmers’ income,” he said.

Rakuten Trade Sdn Bhd research VP Vincent Lau expects the construction sector to be the main beneficiary of Budget 2020.

“It is still early to speculate, but the construction sector will for sure benefit from Budget 2020 as the sector has the multiplier effect to the country’s economy.

“It will benefit from the big- to mid-cap companies, especially those stocks related to ECRL and Bandar Malaysia, among others,” he told TMR.

He added that the country’s water supply and distribution system projects are also expected to gain from the 2020 budget.

Among the counters which could see a spike are Gamuda Bhd which has a YTD market value of RM9.15 billion. Its market value had jumped by 53.27% compared to a RM5.97 billion market capitalisation following last year’s budget announcement.

Last year, the government allocated a budget of RM314.5 billion; 82.61% or RM259.85 billion for expenditure and 17.39% or RM54.7 billion for development.

IJM Corp Bhd’s market capitalisation rose 28.52% to RM7.84 billion YTD versus RM6.1 billion after last year’s budget announcement.

George Kent (M) Bhd’s market value dropped 15.83% to RM554.36 YTD from RM658.62 million following 2019’s budget announcement.

In April this year, the government announced the revival of the Bandar Malaysia project, which spans 196ha at the site of the Royal Malaysian Air Force’s former airport in Sungai Besi. Telecommunication counters are also expected to benefit from next year’s government spending as the nation focuses on the digital economy.

The Communications and Multimedia Ministry has already outlined a massive five-year plan (2019-2023) to deliver quality, fast and affordable digital connection. Investments in 5G would also increase as the nation will start to roll out more applications on this lightning fast network.

Telekom Malaysia Bhd is expected to spearhead the digitalisation movement.

Its YTD market value has risen by 38.85% to RM12.58 billion versus RM9.06 billion last year after the 2019 budget announcement.

British American Tobacco (M) Bhd (BAT) could also be affected by today’s Budget 2020 announcement if the government choose to slap higher taxes on cigarettes.

BAT’s market capitalisation is RM5.03 billion compared to RM10.05 billion a year ago.