We gather that some construction projects are allowed to resume works during the government’s Movement Control Order (MCO), which has been extended to 12 May 2020. Major projects allowed to resume works next week include the Klang Valley MRT Line 2 (MRT2) aboveground works and Light Rail Transit Line 3. Some building works are also allowed to resume. We remain UNDERWEIGHT the sector. Our top picks are SunCon, AME and Taliworks; our top SELLs are Gamuda, IJM Corp and MRCB.

Some Projects Allowed to Resume With Restrictions

Most listed contractors have applied to resume work on their projects last week. Some contractors have received approvals to resume works on certain projects by the Ministry of International Trade and Industries (MITI). MITI imposed some restrictions on the contractors that are allowed to resume works on certain projects: (1) work hours at sites are limited to 8.00 am to 5.30 pm and 5 days a week; (2) health checks at site entrance; (3) provision of worker transportation; (4) practise social distancing; (5) minimal workers at site or limited to 50% of usual requirement; (6) encourage work from home for white-collar workers; and (7) identify supervisor who is responsible to ensure compliance to these requirements.

SunCon, HSS and YTL Approved to Resume Works

We understand that Sunway Construction (SunCon) has been allowed to resume works on all 10 existing projects including its MRT2 and LRT3 subcontract packages, Tenaga headquarters and 4 building projects for Sunway, which include 2 hospital projects. HSS has received approval to resume all engineering works with the restriction of up to 50% of its staff requirement in the office or construction sites, while others work from home. But some of HSS’s construction management works on certain projects have to wait for the contractors to be approved by MITI to resume works. YTL Corp has also received MITI approval to resume works on the GemasJohor Bahru Double Tracking project.

WCT and IJM Are Approved to Resume Some Projects

WCT is still allowed to only undertake critical works for MRT2 and Pan Borneo Highway since late-March, with no new approvals from MITI yet to resume works for its other projects. IJM has received approvals to resume works on some of its projects but we have not received details on which projects will resume from the management. We maintain our earnings forecasts for the construction companies as we have factored in slower progress billings in 1H20. But we remain cautious on the sector due to weak earnings visibility from the MCO impact and order book replenishment concerns. We reaffirm our UNDERWEIGHT call on the sector.

Key Risks

Upside risks to our negative sector view: (1) government pump-priming through the revival of key infrastructure projects; (2) pick-up in the award of government projects; and (3) faster-than-expected resumption of works on construction projects.

Source: Affin Hwang Research - 27 Apr 2020