UOBKH Research believes that the sector outlook in 2024 is promising due to multiple catalysts.
PETALING JAYA: The near-term outlook for the construction sector remains resilient, underpinned by the imminent ramp-up of progress billing, coupled with a gradual margin recovery.
This optimism is further supported by improved contract flows from both the public and private sectors, according to UOB Kay Hian (UOBKH) Research.
The brokerage upgraded its recommendation to “overweight” on construction.
“The upgrade in our sector rating is mainly backed by better visibility on the rollout of mega projects amid a more stable domestic political landscape coupled with a potential uptick in private job flows,” UOBKH Research said.
“On a positive note, we believe the sector outlook in 2024 is promising by virtue of multiple catalysts such as the rollout of mega projects (such as the mass rapid transit three and Penang light rail transit) and the up-and-coming earnings recovery,” it added.
Nevertheless, UOBKH Research said the share price performance of construction firms would largely hinge on the subsequent order-book replenishment trend, as well as earnings recovery amid faster progress billing and margin expansion.
It expected Gamuda Bhd
, Kerjaya Prospek Group Bhd and Sunway Construction Bhd (SunCon) to continue to anchor the improvements in the sector earnings. This is given their above-peer orderbook cover ratios.
Meanwhile, UOBKH Research anticipated private contract flows to improve in the coming months, driven by a pick-up in the property development sector, particularly in Johor and Penang.
“In this regard, Kerjaya Prospek and SunCon could reap the benefits of the stronger private job flows mainly from their affiliated companies,” it explained.
It noted SunCon typically clinches a substantial share of internal jobs from its parent company Sunway Bhd, while 40% to 50% of Kerjaya Prospek’s annual replenishment comes from sister companies Eastern & Oriental Bhd and Kerjaya Prospek Property Group Bhd.
UOBKH Research added that there were also several upcoming catalysts for the sector such as the finalisation of the Johor -Singapore Special Economic Zone and further clarity on the Kuala Lumpur-Singapore high-speed rail which would further spur the Johor property boom.
In addition, the southern state was also witnessing a rise in the data centre and industrial segment that could help stimulate its economy and consequently property demand.
