Outlook on local construction sector remains cautious, focus now on smaller projects

KUCHING: The cautious outlook on the local construction sector remains with analysts believing that the focus will shift to smaller scale or value-for-money basic infrastructure projects.

According to AmInvestment Bank Bhd ( AmInvestment Bank) in its company report on Gamuda Bhd (Gamuda) remained cautious on the outlook for the local construction sector as the government cuts back on public infrastructure projects on grounds of fiscal prudence.

“While the rollout of public infrastructure projects will resume over the medium term as infrastructure development remains key to nation-building, we believe the focus will shift to smaller scale or value- formoney basic infrastructure projects such as road upgrading, bridges, schools, drainage, rural water and electricity supply and smallish sewerage schemes, from multi- bil lion mega projects,” the research firm said.

“The smaller projects are less economical to large- contractors such as Gamuda, given their high fixed overheads.

“Not helping either is the uncertainty arising from the potential expropriation of Gamuda’s toll roads.”

Am Investment Bank highlighted that Gamuda recently secured a number of smallish construction contracts worth a total of RM900 million, including aRM 300 million building job under the Rumah Selangorku affordable housing scheme ( leveraging its capability in industrialised bui lding system or IBS) and a RM300 million infrastructure work package for KL118.

The research firm estimated that these contracts will boost Gamuda’s FY19- 21F earnings by one to two per cent which has been deemed immaterial and hence it is keeping its forecasts.

“More importantly, this shows that Gamuda is willing and able to ‘down trade’ in difficult times.

“At pr e s ent , Gamud a’s outstanding construction order book stands at RM11.8 billion.”

On another no t e , AmInvestment Bank got the impression that the RM32 billion Penang Transport Master Plan ( PTMP) project, where Gamuda has been appointed the project delivery partner, still remains fluid for now.

“Gamuda said that the Penang state government now plans to monetise its land and use the proceeds to fund the project (instead of funding the project via payment in kind in the form of land and rights to reclaim land previously).

“To recap, Gamuda’s portion of the PTMP entai ls the construction of the George Town - Bayan Lepas LRT line ( RM8 billion), the Pan Island Link 1 ( PIL1) highway ( RM8bil) and a new reclamation project known as Penang South Reclamation ( RM16 billion).”