The tenders for MRT3 contracts will provide a timely boost for the construction sector, said RHB Research.
PETALING JAYA: The Mass Rapid Transit 3 (MRT3) project tenders, which will be a boon to the local construction industry, are expected to take place as early as the end of this year.
This follows a firm commitment by the government to proceed with the land acquisition process from the second quarter, according to MRT Corp, that gives a rough indication of possible timelines.
The tender of contracts for the MRT3 will provide a timely boost for the construction sector, said RHB Research.
Apart from this, other planned government jobs in the pipeline would also support the industry, such as flood mitigation projects, the Penang Light Rail Transit (LRT), the Pan Borneo Highway Sabah Phase 1B and the reinstatement of the five LRT3 stations.
There are also Malaysian companies that are interested in participating in Indonesia’s new capital project at Nusantara.
IJM Corp Bhd
is eyeing the Nusantara state civil servant housing project that is worth some RM1bil, which includes several other Malaysian companies that have submitted letters of intent in 2022 as well.
“The Bursa Malaysia Construction Index is trading at a 13 times price-to-earnings ratio, which is slightly above its ten-year mean of 12.7 times. The index was trading at 15.5 times in mid-2017 during the major construction upcycle,” said RHB Research.
“With commendable catalysts in store for the sector, we view the current valuation of the index to be undemanding and as such, an attractive level to enter,” it added.
There has also been increased interest in the area of environmental-related projects with companies such as Sunway Construction Group Bhd and HSS Engineers Bhd participating in renewable energy-related initiatives, such as the Corporate Green Power Programme.
The research house also noted construction giants such as Gamuda Bhd recently announcing it is jointly developing the 187.5 megawatts Upper Padas Hydroelectric Dam with Sabah Energy Corp and the Kerjaya Kagum Hitech joint venture.
Statistics from the Construction Industry Development Board (CIDB) showed the total value of projects awarded to contractors in 2023 fell by 22% year-on-year (y-o-y) to RM127.4bil from the previous year in 2022.
“We view this as a temporary blip – contract rollouts are expected to be backed by the government’s RM90bil development expenditure (DE) allocated for 2024, with 21% of DE focusing on the transport sub sector versus 18% in 2023,” the research house said.
By various segmentation, the statistics showed infrastructure type of projects recorded the largest annual drop in terms of project value, at minus 47% y-o-y amid the dearth of big scale public jobs in 2023.
This is followed by the residential segment at a 37% y-o-y drop but non-residential projects saw a 4% y-o-y rise to RM76.8bil last year, the CIDB statistics showed.
RHB Research’s top picks are Gamuda, Sunway Construction and Kerjaya Prospek Group Bhd. The research house has an “overweight” call on the sector.
