HLIB: Sector on track to hit RM25b target

KUALA LUMPUR: The local construction sector remains bright with job wins expected to hit a new high next year given the rollout of mega rail projects, said Hong Leong Investment Bank Bhd (HLIB).

This is despite the recently higher than expected proportion of earnings disappointment. HLIB said most contractors continued to show healthy order book cover ratio of more than two times.

“We expect a strong revival in job flows next year, driven by several mega rail projects, such as the East Coast Rail Link (ECRL), High Speed Rail (HSR) and Mass Rapid Transit 3 (MRT 3). The significance of these mega rail projects to the construction sector should not be underestimated.

“The sector’s year-to-date job wins of RM15 billion are on track to meet full-year target of RM25 billion this year. Therefore, the sector stays ‘overweight’ as job wins could hit a new high next year,” it said in a report.

Job wins hit a high of RM28 billion in 2012 and RM56 billion last year when the MRT 1 and MRT 2 were rolled out.

For the recent second-quarter results season, six out of the 13 contractors under its coverage (46 per cent) reported core earnings that were below expectations.

The six were Kimlun Corp Bhd, Hock Seng Lee Bhd, Pesona Metro Bhd (although the topline grew 85 per cent year-on-year), IJM Corp Bhd, UEM Edgenta Bhd and Mitrajaya Holdings Bhd.

HLIB said the disappointments were due to lower top line and higher costs.

Its top picks include Gamuda Bhd, given its strong track record with civil rail projects, and George Kent (Malaysia) Bhd as it is the only local player with an expertise in rail-related systems.