KUALA LUMPUR (Dec 12): RHB Investment Bank (RHB IB) has maintained its “overweight” rating on the construction sector, and said it remains upbeat on the sector, premised on favourable operating conditions of adequate labour supply and manageable cost pressures.
In a sector update, the research house said such conditions put contractors in a good position to accept new jobs (especially infrastructure jobs that are expected to be awarded in the medium term), which may further expand their order books that are already showing signs of growth.
It said contractors that meet such criteria are Gamuda Bhd, Sunway Construction Group Bhd, and Kerjaya Prospek Group Bhd, which are RHB IB’s top picks for the sector.
RHB IB said the total value of construction work done in the third quarter of 2023 grew by 9.6% year-on-year (y-o-y), or 3.4% quarter-on-quarter, to RM33.4 billion, the highest in 14 quarters.
Meanwhile, its said based on data from the Construction Industry Development Board, project roll-outs in general were still rather sluggish, with RM116.7 billion worth of new contracts awarded in the cumulative 11 months of 2023, which was 15.3% lower y-o-y than RM137.7 billion a year earlier.
“We think project awards may pick up from calendar year 2024 onwards, backed by the government’s record-high development expenditure of RM19 billion allocated (2023: RM17.6 billion) for transportation projects in 2024,” it said.
RHB IB said Gamuda, Kerjaya Prospek and Sunway Construction are still its top picks for the sector due to their commendable earnings visibility over the next four years.
It said Gamuda had a sizeable presence overseas, while still maintaining relevance domestically. Kerjaya Prospek has a framework arrangement with Samsung C&T, which would enable it to secure more private sophisticated industrial jobs (backed by its net cash pile).
“We also like Sunway Construction for its diverse tender book consisting of a steady flow of internal jobs, together with industrial infrastructure projects like the Song Hau 2 Power Plant project (pending financial close) in Vietnam, which could bring additional RM6 billion worth of orders.
“Key downside risks to our sector call are longer-than-expected delays in contract roll-outs and larger-than-expected cost reductions for the Mass Rapit Transit 3 (MRT3) project,” the research house said.