Mega project rollout in 4Q to kickstart construction sector recovery

Khoo posits re-rating catalyst for construction could be positive news flow on rollout of projects such as MRT3 and Sabah portion of the Pan Borneo Highway 


THE rollout of the Mass Rapid Transit Line 3 (MRT3) project could help jump-start the construction sector and the economy, but tenders are likely to be deferred until the fourth quarter of calendar year 2021 (4Q21). 

With the expected completion of the MRT2 by end of 2022, MIDF Amanah Investment Bank Bhd foresees the MRT3 to be the lowest-hanging fruit to be rolled out potentially in the second half of this year (2H21) to pump up the economy. 

“We believe the tender for MRT3 will be delayed to possibly 4Q21 instead of August as indicated by the rail developer, due to the rising Covid-19 cases and political uncertainty,” MIDF analyst Khoo Zhen Ye told The Malaysian Reserve (TMR). 

Khoo said other mega projects which are also likely to kick off this year are the Pan Borneo Highway post-Sarawak state elections in September 2021, the proposed Kuala Lumpur to Johor Baru high-speed rail project and the Klang Valley Double-Tracking Phase 2 project. 

Although some sections of the construction sector are now allowed to resume operations, Khoo posits the re-rating catalyst for the construction sector could be positive news flow on rollout of mega infrastructure projects such as the MRT3 and the Sabah portion of the Pan Borneo Highway. 

Investors would also need to see more robust earnings from sector stocks with full resumption of construction work operations and contract awards before committing fresh funds to the sector, he added. 

The construction index has fallen from a high of 188.7 points in mid-April to a low of 160.9 points on July 13, before making a slight retracement to close at 163.4 points yesterday. 

MIDF views the major beneficiaries of a rerating of the sector to be Gamuda Bhd with a ‘Buy’ call and a target price (TP) of RM4.20, IJM Corp Bhd (‘Buy’, TP: RM2.27), Sunway Construction Group Bhd (‘Buy’, TP: RM2.09) and Cahya Mata Sarawak Bhd (‘Buy’, TP: RM2.20). 

“This is given their respective strong track record in mega infrastructure projects, solid outstanding orderbook that could provide earnings visibility for the next three to four years and healthy balance sheets,” added Khoo. 

Master Builders Association Malaysia president Tan Sri Sufri Mhd Zin said from the recent news reports, major construction projects like construction of roads and other public infrastructure will be allowed to operate. However, the leeway is biased towards government projects. 

Therefore, the industry is looking forward to the announcement by the government on the operations of private projects. 

“We do understand that for the exemption to resume operations, it needs strict compliance with standard operating procedures (SOPs). 

“We request the revised SOPs for the construction industry and all related subsectors, if any, be issued early before the implementation date, rather than being introduced at the last minute. 

“We hope there will be no additional SOPs or new regulations that will add more costs to the projects,” he told TMR. 

Sufri expects the industry to regain its momentum and be in full operation by the end of this year as more construction workers are getting vaccinated at this moment. 

The construction industry, together with its supply chain, plays an integral and important role in the development of the country and contributing to the growth of the economy, he concluded.