The expected recovery of the sector will be driven by growing anticipation of increased job flows in 2023 and supported by favourable domestic policies.
PETALING JAYA: The construction sector in Malaysia could be looking at a reversal of fortunes in 2023 after several years of lacklustre performance.
The expected recovery of the sector will be driven by growing anticipation of increased job flows in 2023 and supported by favourable domestic policies.
According to Public Investment Bank Research (PublicInvest Research), both public and private job flows could pick up momentum in the first half of this year.
It noted that projects awarded were up two-fold in the second half of last year as compared to the first six months of 2022.
“While we see aplenty sector-related news flow under Prime Minister Datuk Seri Anwar Ibrahim’s administration, we view the ‘equitable distribution’ policy favourable to the sector as it points towards ramp-up development in the underdeveloped states of the country,” the brokerage said in a report.
PublicInvest Research has upgraded its rating on the construction sector to “overweight” from “neutral” previously.
It said the sector valuation was attractive, with the KL Construction Index currently trading at 12.1 times five-year forward earnings, within the average forward price-earnings of 11.7 times.
PublicInvest pointed out that for the past few weeks, the Pakatan Harapan-led government had promptly addressed the economic gap and inequalities between Peninsular Malaysia and Sabah and Sarawak.
“We opine that developments in Sabah and Sarawak and under-developed states in the Peninsular, namely Kelantan and Terengganu, will be ramped up following the appointment of Anwar’s Cabinet, which saw seven out of 28 ministerial posts filled by representatives from East Malaysia,” it said.
“On top of that, the Pakatan coalition (as the then-opposition), in its Alternative Budgets 2022 and 2023, have proposed larger and equitable allocations for all 14 states in Malaysia,” it added.
PublicInvest Research observed that the current government had shunned the procurement of projects without proper tenders, which resulted in a review of RM7bil worth of approvals for flood mitigation projects.
“While this has cast uncertainties on the flow of projects, we are less concerned as the sector’s immediate catalyst, Mass Rapid Transit 3, is done through an open tender.
“Consequently, we believe listed contractors will stand to win a fair share of projects as they appear to have higher levels of transparency and advantage in terms of ability to raise capital,” it added.
Out of the total projects awarded in 2022 that amounted to around RM65.6bil, PublicInvest Research said more than 70% were awarded in the second half of that year.
It noted that the momentum for government projects picked up in the second half of 2022, from RM2.6bil rollouts in the first half to RM8.6bil rollouts.
The research house added that there was also a spike in construction-related loan approvals, especially in the second half of 2022, which climbed 105% from the first half.
In addition, overseas and private projects awarded were also up by 132.2% from RM16.4bil in the first half of 2022 to RM46.6bil in the second half of that year.
