MIDF Research reiterates ‘Positive’ recommendation on construction sector

Govt’s commitment of assisting industry players with the hiring of foreign labour from other source countries provides much relief for the sector


MIDF Research reiterates its ‘Positive’ recommendation on the construction sector in a view that the issue of foreign labour shortage will not be a massive headwind for the sector.

This is after the government’s commitments to assist industry players with the relaxation for hiring from other source countries.

“These will provide much relief for the construction sector, which has been plagued with the issue of labour shortage, triggered by the Movement Control Orders in 2020 and 2021 that saw many foreign workers returning to their originating countries, including those that caught their employers off guard by fleeing illegally,” MIDF Research said in a note today.

The government has given the green light for three crucial sectors, namely construction, manufacturing and services to hire foreign workers from all the 15 permitted source countries as stipulated by the Home Affairs Ministry.

It opens up the avenue for construction companies to hire workers from other countries such as Thailand, Cambodia, Nepal, Myanmar, Laos, Vietnam, the Philippines, Pakistan, Sri Lanka, Turkmenistan, Uzbekistan and Kazakhstan.

“This is a vital move at a time when Indonesia has put in place a hiring freeze stemming from what seems to be a misunderstanding on the online system to be used for hiring domestic helpers from Indonesia,” the rating firm said.

Since Indonesian workers are currently available, MIDF Research believes the next in line in terms of preference will be workers from Bangladesh, apart from all the other countries that construction firms can now hire from.

However, MIDF Research is optimistic that the issue of the hiring freeze from Indonesia can be resolved amicably between both governments.

“We believe an amicable resolution can be expected soon, at least before the rollout of mega projects locally.

“Even if the issue prolongs, construction companies are still able to rely on hiring workers from Bangladesh, their next top choice after Indonesia and from other source countries,” it noted.

According to MIDF Research, the construction industry currently needs about 600,000 foreign workers as industry players ramp up their operations with the reopening of the economy and gearing up for upcoming infrastructure contract rollouts, starting with the Mass Rapid Transit 3 (MRT3) in the fourth quarter of the calendar year 2022 (4QCY22).

Pre-Covid, the construction sector’s number of filled jobs peaked at 1.31 million people in 4QCY19.

“This dwindled to 1.22 million people as of 1QCY22, a reduction of 6.8% or 88,600 people, according to Department of Statistic Malaysia’s quarterly employment statistics,” it said.

Additionally, the shortage of labour causes a delay in work progress, which may lead to penalties or liquidated ascertained damages claims.

Despite the lack of foreign workers in the industry, MIDF Research said some companies are comfortable with their current workforce levels as their ongoing projects do not require a huge number of labours, while other companies have an immediate need for workers.

“Sunway Construction Group Bhd, for example, had earlier obtained necessary approvals from the authorities and have paid all the levies and agency fees for about 400 workers, mainly from Indonesia,” it added.

MIDF Research continues to favour companies with robust balance sheets, which will give them the headroom for upfront financing requirements such as in MRT3 and for future highway projects where the government will no longer provide financial assistance.

“On a side note, we want to put forth a view that it is timely for the construction to seriously adopt labour-saving technologies including automation with a long-term view of reducing the reliance on low skilled foreign labour,” it further said.

MIDF Research’s top picks for the construction sector are Gamuda Bhd with a ‘Buy’ call and a target price (TP) of RM4.02, IJM Corp (Buy, TP: RM2.18) and Sunway Construction (Buy, TP: 1.87).