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Public infrastructure projects to drive construction sector

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Publish date: Thu, 04 Apr 2024, 01:12 PM

KUALA LUMPUR: Public infrastructure projects are expected to drive construction sector contracts in the coming quarters, with sizable projects in the pipeline.

Hong Leong Investment Bank Bhd (HLIB) noted that public contracts in the first quarter of 2024 (1Q24) remained sluggish, decreasing by 3.8 per cent year-on-year (YoY).

However, the investment bank said for the remaining quarters of 2024, it looks forward to the rollout of big ticket infrastructure projects like Penang LRT worth more than RM10 billion, Pan Borneo Sabah Phase 1B (RM15.7 billion), flood mitigation packages (RM11.8 billion), Sabah-Sarawak Link Road (RM7.4 billion), LRT3 reinstatement (RM4.7 billion), KUTS-Green Line, and water scheme projects.

"There are also other basic infrastructure projects to come, funded by the high level of development expenditure of RM90 billion.

"These projects should help drive contract flows in 2024, while the pipeline from industrial projects and data centers remains highly robust. 

"Johor has been touted as the fastest-growing data center market in the Southeast Asia region," it said in a note. 

Meanwhile, HLIB also said it anticipates further developments on Johor LRT (RM20 billion) and Kuala Lumpur-Singapore high-speed rail (HSR) in the coming months. 

It added that the former serves as a critical dispersal system for the incoming Johor Bahru-Singapore Rapid Transit System (RTS), which will be operational in 2027.

HLIB also noted that though there was disappointment over MRT3, its base case is a retender of the project as government priorities state infrastructure developments.

According to HLIB, domestic contract awards to listed contractors totalled RM6.96 billion in 1Q24. 

Contracts during the quarter were off to a strong start, driven by private sector jobs, as public contracts contributed approximately 15 per cent of 1Q24 contract flows.

On private sector jobs, it was noted that flows came from commercial and residential development projects, while there were two contracts from the data centre space.

On that note, HLIB said it maintains an "overweight" call on the construction sector, keeping to its thesis of mega infrastructure contract rollouts coupled with robust private sector job flows from data centres, factories, warehouses, and commercial/residential projects to drive contract awards beyond the RM20 billion per annual norm. 

Its big-cap top pick is Gamuda Bhd, with a "buy" call and target price of RM6.11 premised on attractive valuation and stronger tender positioning in local infrastructure project rollouts.

Sunway Construction Group Bhd (SunCon) is its mid-cap pick, with a "buy" call and target price of RM3.20.

 

https://www.nst.com.my/business/corporate/2024/04/1034203/public-infrastructure-projects-drive-construction-sector

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