Constructors to see boost from mega infra projects
The construction sector is expected to be supported by the roll-out of various mega public infrastructure projects, analysts at Kenanga Investment Bank Bhd (Kenanga Research) said.
“We maintain our ‘overweight’ rating on the construction sector ahead of the roll-out of various mega public infrastructure projects such as the RM45 billion MRT3 or MRT Circle Line which will provide connectivity to the existing MRT, LRT, monorail and train lines in Klang Valley through interchange stations, and the RM9.5 billion Bayan Lepas LRT, which will help to ease the chronic traffic congestion in Penang Island.
“Coupled with the roll-out of six flood mitigation projects reportedly to be worth RM13 billion including flood mitigation works at Sungai Johor (Johor), the construction of the Sungai Klang-Sungai Rasau dual-function reservoir (Selangor) and the Sungai Golok Integrated River Basin Development Phase 3 (Kelantan) and new Pan Borneo Highway packages, we believe there will be enough jobs to go around for all players.”
It also said it is unperturbed by a lower gross development expenditure of RM90 billion in Budget 2024, compared with RM97 billion estimated in Budget 2023 as the government can tap into DanaInfra Nasional Bhd to fund these large-scale public projects on an off-balance sheet basis.
In East Malaysia, the government has committed to expedite on-going projects here such as Pan Borneo Highway and Sabah-Sarawak Link Road.
According to the Mid-term Review of the 12MP, Pan Borneo Highway Sarawak Phase 1 was 92 per cent completed while the Phase 1A in Sabah was 74 per cent completed in 2023.
“Given its involvement in the Sarawak-Sabah Link Road project, Kimlun is keen to bid for work packages from Pan Borneo Highway Sarawak Phase 2, while IJM has also shown interest.
“Meanwhile, the Sabah state government said that the entire 19 work packages of Phase 1B of the Pan Borneo Highway Sabah worth a total of RM15.7 billion will be awarded by March 2024,” the research team said.
Meanwhile, Kenanga Research pointed out that the industry is poised for margin recovery as newly-secured contracts reflected cost inflation.
“In addition, post the pandemic, it has become increasingly common for contracts to carry price escalation clauses to safeguard the margins of contactors.
“As such, we expect industry margins to improve in 2024 as older contracts with low margins tail off and new contracts with normalised and higher margins start to contribute,” it said.