Bimb Research Highlights

Construction Sector - 2QFY23 Earnings Review: Construction

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Publish date: Wed, 06 Sep 2023, 04:50 PM
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Bimb Research Highlights
  • During recently concluded earnings season, Gamuda’s earnings came within our expectation whilst SunCon fell short of our forecast.
  • We maintain a positive outlook for the sector fueled by a more robust federal government spending in sustaining the momentum in infrastructure initiatives.
  • Moreover, the sector receives significant support from the increasing demand for semiconductor foundries and data centers, along with favorable developments in building material prices.
  • Maintain an OVERWEIGHT call on Construction sector with a BUY call on Gamuda (BUY, TP: RM5.16), and SunCon (BUY, TP: RM1.99).

Mixed Bag of Earnings Results

In the recent concluded earnings, Gamuda reported a strong performance in 3QFY23, primarily propelled by their Australian construction projects. This has resulted in a remarkable growth in overseas revenues which has surpassed domestic revenues. Conversely, Sunway Construction (SunCon) fell short of expectations due to higherthan-expected depreciation. Consequently, adjustments were made to lower earnings forecasts. However, SunCon retains a robust order book, including recent orders totalling RM1.6bn. All in all, both companies are still demonstrating positive overall trends.

Anticipating Progress

With the anticipation of a consistent policy environment following the recent state election, we look forward to several significant upcoming projects. These projects encompass the revamped MRT3 with a budget of RM45bn, where we expect Gamuda to emerge as the primary beneficiary. Additionally, Gamuda's extensive expertise positions them to potentially win the RM2bn Sg. Rasau Water Supply Scheme Phase 2. This put Gamuda on the right track to expand its orderbook to more than RM25bn from current RM21.5bn.

Furthermore, we expect positive cascading impacts to extend from the Pan Borneo Sabah highway, the Bayan Lepas LRT project in Penang, and the resurgence of the KLSingapore High-Speed Rail (HSR). Notably, Phase 1 of the RM25bn National Energy Transition Roadmap (NETR) offers opportunities, particularly in solar power plants and renewable energy zones. SunCon's inclusion in the Corporate Green Power Programme (CGPP) with a quota of 29.9MW has the potential to bolster their order book within the sector. Additionally, SunCon's success in securing of a substantial RM1.7bn data center project in Sedenak Tech Park (STeP) in Johor, positions them to take advantage of the burgeoning data center sector.

Overweight on the Sector

We maintain an OVERWEIGHT call on the Construction Sector with a BUY call on Gamuda (BUY, RM5.16) and SunCon (BUY, RM1.99) driven by (i) positive momentum in infrastructure initiatives, (ii) growing demand in semiconductor foundries and data centers, and (iii) favourable building material price trends. Downside risks to our sector call include (i) project delays from ongoing government reviews, (ii) market demand fluctuations, and (iii) rising material costs.

Source: BIMB Securities Research - 6 Sept 2023

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