KUALA LUMPUR (Nov 7): CGS-CIMB has a 'double overweight' recommendation on the construction sector, owing to its higher confidence in the government's policy continuity.

According to a note on Tuesday, its top picks for the sector that offer "compelling exposure across the project spectrum" are Gamuda Bhd ('add', target price [TP]: RM5.65), YTL Corp Bhd ('add', TP: RM1.91), Sunway Bhd ('add', TP: RM2.57), Muhibbah Engineering Bhd ('add', TP: 90 sen), HSS Engineers Bhd ('add', TP: RM1.21), Sunway Construction Bhd, IJM Corp Bhd, and Malayan Cement Bhd.

"Although the KL Construction index is up 21% year-to-date (partly driven by the property exposures of the larger listed construction companies, we suspect), it is trading at 45% below levels seen in mid-2017, prior to the fall of the Barisan Nasional government.

"There was understandably some pushback to our thesis and we got the sense that few investors, if any, have taken such an aggressive positioning on construction just yet," CGS-CIMB noted.

The research house had earlier noted that investors were increasingly concurring with its view that the government's messaging of its medium-term plans and strategies have become clearer.

However, it also cautioned that there was also a growing sense of frustration among investors as they feel that the government is not initiating catalytic projects, which are essential to achieving Prime Minister Datuk Seri Anwar Ibrahim's Madani Economy agenda.

"While encouraged by the granularity provided in Budget 2024, such as, for example, in the planned rollout of its aggressive development expenditure budget of RM90 billion (plus a couple of high profile projects that are treated as off-balance sheet), we believe it is imperative that several project awards take place between November 2023 and March 2024 to generate greater confidence that the government is serious about taking the economy to the next level," it said.

CGS-CIMB said it will be keeping a close eye on the potential awards for the Pan Borneo Highway Sabah phase 1B project worth RM15.7 billion, the Sabah Sarawak Link Road (RM7.4 billion), the Mass Rapid Transit 3 (MRT3) project (RM30-45 billion), flood mitigation projects (RM11.8 billion), and the Bayan Lepas Light Rail Transit (LRT) project (RM10 billion).