Analysts remain cautious on outlook for local construction sector
KUCHING: Analysts are remaining cautious on the outlook for the local construction sector, as indicated in AmInvestment Bank Bhd’s company report on Sunway Construction Group Bhd (Sunway Construction).
According to AmInvestment Bank, as the government scales back on public projects, local contractors will be competing for a shrinking pool of new jobs in the market.
“Severe undercutting among the players will result in razor-thin margins for the successful bidders,” the research firm said.
“On the other hand, the introduction of a more transparent public procurement system under the new administration should weed out rent-seekers, paving the way toward healthier competition within the local construction sector.”
On Sunway Construction, AmInvestment Bank believed the group is mitigated by its substantial order backlogs that should keep it busy over the next one to two years, coupled with its proven ability to compete under an open bidding system.
“However, valuations are unattractive at 11-fold to 13-fold forward earnings on muted sector prospects.”
That said, the research firm noted that the latest job awarded to Sunway Construction has boosted the group’s year to date (YTD) construction job wins (excluding precast orders) to RM1.32 billion and its outstanding construction order book to RM5.48 billion.
Sunway Construction’s Board of Directors recently announced in a filing on Bursa Malaysia that its subsidiary Sunway Construction Sdn Bhd (SCSB) had on December 5, 2018, accepted the Letter of Award issued by SA Architects Sdn Bhd on behalf of Sunway Integrated Properties Sdn Bhd (SIPSB).
This is in respect of the main building works including basement architectural and M& E works, pedestrian bridges and associated external works for the “proposed development of Block 1A (22 Floors) which comprises three floors of commercial area, eight floors of office area, 11 floors of serviced apartments, pedestrian decks and four floors of basement carpark on part of PT 495 Seksyen 90, Jalan Peel, Jalan Shelley and Jalan Cheras, Wilayah Persekutuan, Kuala Lumpur”.
This project award is for a total contract sum of RM100 million. The filing also revealed that SIPSB is an indirect subsidiary of Sunway Bhd, which in turn is a major shareholder of Sunway Construction.
All in, AmInvestment Bank kept its forecasts that assume the group’s construction job wins of RM1.5 billion annually in FY1820F.