Construction sector to improve in 4Q, analysts say


THE increasing vaccination rate would further substantiate the reopening of more economic sectors to allow overall business activities, including the construction sector, to facilitate the economic recovery post-pandemic. 

RHB Investment Bank Bhd (RHB Research) analysts Muhammad Danial Abd Razak and Eddy Do Wey Qing stated that the full reopening of the construction sector is possible by October 2021. 

“Companies have been guiding for better overall performances in the fourth quarter of 2021 (4Q21). 

“This is especially as the government has allowed industry capacity to go up to 100% and that it recently set multi-tier conditions for construction companies to allow them to increase operational capacity from 60% previously,” they wrote in a research report yesterday. 

They said the anticipated improved financial performance hinges on getting more workers in the sector vaccinated. 

Construction firms are expected to inoculate at least 80% of their site workers by next month considering current vaccination rates. 

While the construction sector has a brighter outlook going forward, the analysts noted that 2Q21 results were below expectations.

“Pintaras Jaya Bhd was the only beat, underpinned by the higher progress billings recognised in Singapore.

“In general, progress at construction sites was slower than expected due to the residual impact of multiple site closures,” they wrote in the report. 

They expect key operational activities to normalise within 4Q21 following the results and have revisited earnings forecasts. 

“Consequently, cumulative earnings for the financial year 2021 (FY21) forecast and FY22 were cut by 10% and 2%,” they added. 

Following the normalisation in 4Q21, the construction sector and its activities are expected to be fully ramped up in 2022. 

Upon a full sector reopening, they expect productivity to improve in tandem with the easing restrictions. 

They said the reactivation of the Mass Rapid Transit Line 3 project, which is expected to commence next year, would benefit contractors along the supply chain. 

They added that the increase in productivity should also help contractors to improve their margins from a low base, as they benefit from higher economies of scale. 

RHB Research kept the construction sector at ‘Overweight’, with Gamuda Bhd and Kerjaya Prospek Bhd among the top picks. 

“We believe they have supportive catalysts to buffer near-term risks and may come out of the pandemic stronger due to their supportive order books. 

“Downside risks to our sector call are longer-than-expected delays in-progress works, failure to secure new orders, and further delays in execution,” the analysts stated. 

Additional downside risks include the slower-than-expected progress in the immunisation rate under the National Recovery Plan.