HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 27 Nov 2020, 11:01 AM


Construction - Rebound on Conversion of Prior Delayed Jobs

Author:   |    Publish date:

3Q20 domestic contract awards totalled RM4.6bn (+311% QoQ, +328% YoY). Contract flows surged in 3Q20 as delayed awards due to Covid-19 lockdown were finally converted. We anticipate a loss of recovery momentum into 4Q20 as government efforts are channelled towards combating the resurgence of Covid-19 cases. 4Q20 news flow will largely be centred on Budget 2021 with MRT3 potentially making a comeback. Maintain NEUTRAL as downside risks persists. Our top pick in the sector is IJM and SunCon.

Rebound in 3Q20. Domestic contract awards to listed contractors totalled RM4.6bn in 3Q20 (+311% QoQ, +328% YoY). As anticipated on a QoQ basis, contract flows surged in 3Q20 as pent-up/delayed awards due to Covid-19 lockdown were converted during the quarter. On a YoY basis, contract awards more than quadrupled on the back of pent-up conversion as well as low base in 3Q19 resulting from smallish contracts sizes. We are anticipating a loss of recovery momentum going into 4Q20 as the government’s priority is diverted towards combating the resurgence of Covid-19 cases. While jobs from ECRL have gradually materialised, packages has been miniscule given that the contracts are by trade (small scale specialist works awarded directly by main-con) rather than vertical cut packages.

YTD. On a cumulative basis, job awards were up by 4% to RM9.6bn. While the increase may seem surprising given that 2020 has been marred by a global pandemic, 2019 saw slower job flows as changes in ruling government in GE14 and subsequent suspension of mega projects manifested in smallish jobs awards that year. Breadth of contract flows is also narrower this year with 55% of 9M20 jobs going to 4 contractors, namely Kerjaya Prospek, WCT, SunCon and IJM.

4Q20 news flow. For the remaining quarter of 2020, all eyes will be fixed on Budget 2021 on 6 Nov. Potential projects to be announced include revival of MRT3 (RM22.5b) as well as a slew of water-related, hospital, highway and rural road projects. Government’s commitment to approved projects like RTS (RM3.75b), ECRL (RM44b) and PBH (RM28b) should also be reiterated in the budget speech.

Notable contracts. Some of the notable contract wins in 3Q20 include (i) Light City construction to IJM (RM865m), (ii) construction of apartments at Sunway Belfield to SunCon (RM403m) and (iii) mixed development construction at Bandar Sunway to SunCon (RM344m).

Foreign jobs. Foreign contract awards in 3Q20 fell drastically to RM856m (2Q20: RM9.9bn, 3Q19: RM918m). The weaker QoQ numbers were mainly due to high base in 2Q20 resulting from sizable contract award secured by Serba Dinamik (RM7.7b). We reckon the flattish YoY number was mainly from the RPT subcontract award (RM608m) from Serba Dinamik to SCIB for a project secured by the former in early 2Q20. Based on our compilation, all foreign contracts secured in 3Q20 were by SCIB and KPower which is a narrow representation of the sector. On a YTD basis, awards surged more than eight fold largely on the back of Serba’s bumper contract as well as domestic contractors shifting focus overseas post-GE14.

Maintain NEUTRAL. Maintain NEUTRAL rating on construction. While we see trading opportunities moving towards Budget 2021 and 12MP, concerns persist with risks such as: (i) fluid political situation and (ii) resurgence of Covid-19 cases still at play. Nonetheless, we believe this is largely reflected in sector’s trading valuations with the KLCON (YTD: -23%) trading at a mere 11.7x forward PER (5 year mean) and 0.58x P/BV. We favour construction stocks with extensive rail experience and historical execution consistency to leverage on potential influx of mega rail projects.

Top Picks. IJM (BUY, TP: RM1.66) is our top pick in the large cap space as a potential beneficiary of government’s infrastructure pump-priming backed by its breadth of rail related construction experience. Against this backdrop, the company trades at an attractive near GFC low P/BV of 0.50x. Within the mid-small cap space, we continue to like SunCon (BUY, TP: RM2.08) due to (i) strong balance sheet; (ii) extensive track record of infrastructure projects and (iii) strong support from parent-co.

Source: Hong Leong Investment Bank Research - 7 Oct 2020

Share this

Related Stocks

Chart Stock Name Last Change Volume 
IJM 1.64 -0.01 (0.61%) 3,611,200 
KERJAYA 0.99 +0.05 (5.32%) 1,505,000 
WCT 0.435 +0.015 (3.57%) 9,656,200 
SUNCON 1.90 -0.02 (1.04%) 91,900 

  Be the first to like this.

I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
View candlestick stock charts with Technical indicators
MQ Affiliate
Be rewarded by being an MQ Affiliate

529  557  546  538 

Top 10 Active Counters
 KANGER 0.185+0.005 
 AT 0.200.00 
 BINTAI 0.795+0.10 
 KGROUP 0.060.00 
 MTRONIC 0.115+0.005 
 ASIABIO-OR 0.015+0.005 
 IRIS 0.36+0.005 
 VIVOCOM 1.01+0.205 
 FINTEC 0.105+0.01 
 SOLUTN 1.27+0.15 


1. The Equity Market Index Benchmark in Malaysia CMS
2. Trading Scenarios of Derivatives Bursa Derivatives Education Series
3. Derivatives 101 Bursa Derivatives Education Series
4. Why Trade FKLI? Bursa Derivatives Education Series
5. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!


1. Should we buy Top Glove since it has been plunging due its 28 factories shut down? Koon Yew Yin Koon Yew Yin's Blog
2. Jaks Resources - Jaks Hai Duong Power Plant Achieved Commercial Operation Date (COD) !!! DK
3. VIVOCOM: End of Day Report (26 Nov 2020) See Jovin
5. Kelington Group Berhad ("KGB") - Above Expectations (TP: RM2.30; +35% upside) by Kenanga Research Investment Ideas - Value and Growth
6. 【Growth成长股】AWC Berhad (7579) – Benefit from Strong Order Book Amounted Close to RM1Bil Sanitize and Disinfection Healthcare Stocks
8. How can you retire with RM2mil cash in Malaysia? Ant On The Street Blog