by JAY SHEILA / pic by TMR FILE

INVESTORS should add positions in the construction sector as a new wave of awards of public infrastructure projects are likely to come after the next general elections.

In a sector report, Kenanga Investment Bank Bhd (Kenangan Research) has maintained its ‘Overweight’ call on construction, with its top pick being Gamuda Bhd whose target price has been raised by 12% to RM4.70 (from RM4.20).

“We believe investors should add positions in the sector ahead of the 15th General Election (GE15), although we gathered from the ground that a new wave of awards of public infrastructure projects is more likely to hit the market after GE15, rather than before.

“There is also a strong case for the government to embark on counter-cyclical fiscal pump-priming to shield the economy from external slowdown,” it said in a research note released today.

It said the sector’s headwinds are diminishing with the easing of labour shortage and building material costs.

In Budget 2023 to be announced on Oct 7, Kenanga Research is forecasting a higher gross development expenditure of RM90 billion versus RM76 billion in financial year 2022 due to the absence of Covid-related funds in the previous Budget 2022, worth RM23 billion.

“Based on our channel checks, we also understand that there is unused gross development expenditure from Budget 2022.

“We understand that projects have been held back as tender prices put in by contractors did not meet (i.e., exceeded) budgets for most projects (due to soaring labour and material costs).

“The rollout of new public projects will come handy at a time when orderbooks of most contractors are fast depleting,” it said.

Kenanga Research said the new wave of awards of public infrastructure projects will include Mass Rapid Transit 3 (MRT3), Pan Borneo Sarawak Phase 2, Pan Borneo Sabah, Central Spine Road and various flood mitigation and hospital projects.

It is critical for the government to start rolling out new jobs as most key ongoing infrastructure projects are already at their tail-end including MRT2, Light Rail Transit 3 and Pan Borneo Phase 1. The tenders for the three civil packages under MRT3 will close in September 2022 (delayed from August 2022) and the research house anticipates the award of contracts early next year.

On the private sector front, it said there are opportunities in the construction of new semiconductor plants and data centres locally as multinational corporations diversify their manufacturing bases geographically (away from China) to de-risk.

“We gathered that these contracts could be sizeable i.e., between RM1 billion to RM1.5 billion each. However, the same cannot be said for the office and high-rise residential segments given the persistent oversupply,” it said.

Given the fiscal constraints, Kenanga Research said mega projects could be implemented via public finance initiative or deferred payment models.

For instance, it said contractors of MRT3 may fund the project during the first two years of construction, only to be paid the entire amount in equal monthly instalments during the third and fourth years.

Other projects that are likely to be carried out via these models are a flood mitigation project in the west of Klang Valley, reportedly with a price tag of RM5 billion to RM15 billion, depending on proposals by various bidders, are Petaling Jaya Dispersal Link, Bangi Putrajaya Highway and Kuala Lumpur Northern Dispersal Expressway, also known as KL Node.