Revival of large-scale projects at risk

Potential change in leadership, govt could lead to further delays

PETALING JAYA: Affin Hwang Capital has downgraded the construction sector to “underweight” as the potential change in leadership or government could lead to further delays in rolling out the infrastructure projects.

The research house said its previous “overweight” call was premised on expectations that the government would accelerate development expenditures and revive some large-scale infrastructure projects, such as Johor Bus Rapid Transit, Rail Transit System, Pan Borneo Highway Sabah, Klang Valley MRT Line 3, Penang Transport Master Plan and KL-Singapore High Speed Rail.

It noted that the current political uncertainties will dampen sentiment on the construction sector as it is susceptible to changes in government policies and delays in public sector project awards.

“The construction companies are reliant on public sector projects to replenish construction order books as construction demand from the pro-perty sector remains weak. There is also the risk of a change in government that could lead to changes in policy on the government contract awards and infrastructure concessions,” Affin Hwang said in a sector update.

“We observe that the KL Construction Index (KLCON) typically underperformed the KLCI during previous periods of political uncertainty caused by changes in the prime minister or government. The KLCON underperformed the KLCI by 5-7% over a one-month period after the change in prime minister in 2003 and 2009.”

The KLCON underperformed the KLCI more severely, by 37%, after the change in government in 2018, it said.

“Hence, the degree of underperformance for the KLCON could depend on whether there will just be a change in prime minister or the government.”

Affin Hwang cut its target prices for two construction stocks under coverage, including downgrading Gamuda Bhd to “sell” from buy and HSS Engineers Bhd to “hold” from buy, given elevated order book replenishment risks.

“We retain Sunway Construction Group Bhd as our top buy given its ability to secure in-house and private sector projects and its being relatively less reliant on government jobs. We include AME Elite Consortium Bhd (industrial properties continue to see good demand) and Taliworks Corp Bhd (high dividend yield) among our small-cap top buys,” it added.