Can construction really grow in 2022?

We are starting to see investors sniffling around for growth sectors in 2022. Despite record high DE and 12^th Malaysia Plan targets, we still see sluggish reaction from investors towards construction stocks.

Here’s a little fact for you.

Construction activity in Malaysia contracted 21.0 percent year-on-year in the September quarter of 2021, reversing from a record high of a 42.6 percent growth in the prior period, dragged down by renewed coronavirus-induced restrictions and sluggish vaccination rate. Declines were mainly seen in civil engineering works (-29.7 percent vs 59.5 percent in Q2), residential buildings (-24.9 percent vs 18.0 percent), and non-residential (-10.4 percent vs -37.0 percent). At the same time, special trade activities moderated sharply (21.0 percent vs 75.0 percent).

The construction market is closely tied to the property upcycle to gain momentum. Will there be pent up construction jobs in the market?

Well, FAF Research expects the property upcycle to gain momentum as the Covid-19 pandemic appears likely to transition to an endemic soon.

“We maintain our pre-sales growth target for the developers by about 19% or about RM11.5 billion in 2022. Stronger sales growth would eventually trigger a narrowing in discount to the sector’s revalued net asset value (RNAV). We expect 2022 sales to be the strongest since the downcycle that began in 2016,” he said.

He also noted that property stimulus like the Home Ownership Campaign (HOC) had encouraged home purchases since it was first announced in July 2020 during the pandemic.

“As we approach the endemic stage of Covid-19, one of the avenues to reflate the overall economy is to continue to extend the stimulus to the property sector. This is because property has a multiplier effect on the overall economy, including banking, insurance and construction,” he said.

Although no official pre-sales target has been announced by developers as yet, he said in general, they are looking at stronger pre-sales in 2022 from their more aggressive planned launches in 2022.

“Their working assumptions exclude the HOC extension. Any easing measures like the extension of HOC would be an added catalyst to a stronger property outlook in 2022,” he said.

In other words, the property and construction market had pretty much bottomed now.

In the current market, we selected a few deep value stocks for investors reference.

TRC (KLSE:5054) with PER of 5.96 times.

IJM (KLSE: 3336) with PER of 5.47 times.

PUNCAK (KLSE: 6807) with PER of 4.17 times.

AGES (KLSE: 7145) with PER of 1.70 times.

ZELAN (KLSE: 2283) with PER of 1.63 times.

These are some of the deep value stocks that investor could look at now, given that these stocks had very low single digit PER. And yes, you can invest into construction sector now, given that the industry is highly cyclical and one should...

Buy the dip!