PETALING JAYA: The potential rollout of big-ticket infrastructure contracts next year that were largely missing in 2023 is expected to spice up the outlook for the construction sector.
This could be driven by the unblocking of the public-project pipeline, incremental fiscal space from subsidy reforms and a calmer political situation.
HLIB Research foresees potential for higher contract awards next year beyond current levels of about RM20bil.
It said amid the prospect of an extended contract recovery upcycle, sector valuations are still undemanding, trading at a price-earnings ratio and price-to-book multiple of 12.7 times and 0.7 times, respectively.
The research house upgraded the construction sector to “overweight.’’
Its top picks for the sector remain unchanged, with preference for Gamuda Bhd, for which it has a “buy’’ call with a target price (TP) of RM5.15 a share, and Sunway Construction Group Bhd with a TP of RM2.16 a share.
Going into 2024 and based on Budget 2024 the government intends to roll out several big-ticket projects such as the Pan Borneo Highway Sabah Phase 1B (RM15.7bil), flood mitigation packages worth RM11.8bil, the Penang Light Rail Transit project worth RM10bil, the Sabah-Sarawak Link Road (RM7.4bil), and reinstatement of the LRT3 project (RM4.7bil).
These projects form part of 2024’s budgeted development expenditure (DE) of RM90bil (plus 7.9% year-on-year stripping of 1MDB bond).
HLIB Research expects further developments on civil packages for the Mass Rapid Transport 3 project (tender validity extended to March 2024) while there is potential for more announcements from other prospective projects such as the Kuala Lumpur-Singapore High Speed Rail and Johor LRT projects (RM20bil).
Tangible developments for the Special Economic Zone and Special Financial Zone in Johor could also generate more construction opportunities, in particular the former given its greenfield status.
Infrastructure project rollouts were largely below expectations in 2023 as anticipated announcements failed to materialise, in part due to the re-tabling of the budget and mid-year state elections.
The research house believes the recent appointment of a second finance minister should start unclogging the project pipeline while ongoing subsidy rationalisation will have an incremental effect of lifting the fiscal space as potential savings are repurposed for infrastructure projects over the longer term.
It added that 2024 was an opportune time to start building after factoring in implementation time lags, the full scale of economic multiplier effects to be felt before the next general election.
On the water space, there could be a pickup in future capital expenditure with tariff hikes slated for next year.
One major project in this space is the critical Sungai Perak Raw Water Transfer Scheme that could cost RM4bil to RM5bil, the research house highlighted.
Source: The Star