• In the recently concluded earnings season, companies within our coverage exhibit positive financial trends and align with our expectations.

• We maintain an optimistic outlook for the sector, driven by the anticipation of substantial expansion and a growth trajectory in the upcoming quarters. Industry players strategically position themselves to unlock the capacity for securing winning bids on vital projects.

• Maintain an OVERWEIGHT call on Construction sector with a BUY call on Gamuda (RM5.16), SunCon (RM2.88) and AQRS (RM0.49)

Met our expectation

In the latest earnings assessments, companies within our coverage have aligned well with our expectations, exhibiting positive financial performances in their respective fiscal periods. Gamuda reported an impressive 34.5% growth in 1QFY24 core net profit, propelled by successful overseas construction projects. Our sustained optimism for Gamuda is rooted in the company's substantial orderbook of RM26bn and robust unbilled property sales reaching RM6.7bn. Meanwhile, SunCon's FY23 results showcased growth in both Core Net Profit and revenue, driven by construction activities in India, augmented contributions from sustainable energy projects, and enhanced production for its Integrated Construction & Prefabrication Hub (ICPH). Reflecting our confidence in SunCon's trajectory, we have upgraded our recommendation to BUY and revised the TP to RM2.88 (from RM1.99), as the price has reached our valuation. Despite a slight decline (-8.5%) in the topline closing FY23, AQRS has achieved a commendable bottom-line increase of 11.2% YoY. We do note that the decrease in revenue was mainly due to higher revenue generated in the preceding year from the completion of the Sungai Besi - Ulu Kelang Elevated Expressway (SUKE) project.

Gears up for persistent growth and vital projects

The construction sector is on the brink of significant growth, and we expect enhanced performance in the upcoming quarters as industry players strategically position themselves to unlock sustainable capacities for various projects. These initiatives include the MRT3 the rejuvenation of LRT3 stations, and the development of the Bayan Lepas LRT, which geared towards alleviating chronic traffic congestion in Penang. While we anticipate the MRT3 gaining traction in the latter half of 2024, our confidence in the sustained vitality of the construction sector remains unwavering. Our positive outlook is significantly supported by extensive infrastructure projects and substantial construction opportunities spanning various segments. These include semiconductor foundries, data centers, and renewable energy projects, highlighting an ongoing trajectory of growth and dynamism within the industry.

Overweight on the Sector

We maintain our OVERWEIGHT stance on the Construction Sector driven by burgeoning growth in infrastructure initiatives and growing demand in semiconductor foundries, data centers and renewable energy. We have BUY call on Gamuda (RM5.16), SunCon (RM2.88) and AQRS (RM0.49).

Source: BIMB Securities Research - 4 Mar 2024