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Mega projects to boost construction

PETALING JAYA: The Malaysian construction sector, a key harbinger of economic growth, has borne the brunt of weak business sentiment and lack of building jobs in the market.

For the first time in eight years, the country’s value of construction work done contracted by 0.6% year-on-year in the third quarter of 2019 (3Q19).

Based on the data by the Statistics Department, the growth in the value of the construction work done has slowed down since 2012, although the growth rate remained well above 10%.

The sector took a turn for the worse this year, with the value of construction work done every quarter merely expanding at a rate below 1%.

The unfavourable developments in the construction industry, amid the slower economic growth, have dragged down the earnings of construction players and battered investor interest in such counters.

As a result, in 2018, Bursa Malaysia’s Construction Index posted the worst decline since the 2008 global economic crisis as investors began to dump shares in listed construction counters.

However, the index began to see a sharp upward trend this year following the renewed optimism after the government announced the resumption of several large projects such as the RM44bil East Coast Rail Link (ECRL) and the RM140bil Bandar Malaysia.

Moving forward, market observers believe that the revival of the mega projects would be the much-needed catalyst for the construction sector.

According to UOBKayHian Malaysia Research analyst Farhan Ridzwan, several of the long-awaited rollout of mega projects would materialise in the first half of 2020 for the government to sustain the country’s economic growth.“Mega-infrastructure projects that are expected to kick off soon include the ECRL (from end-4Q19 onwards) and potentially Pan Borneo Highway Sabah (from 1Q20 onwards). Meanwhile, the Rapid Transit System project was given the green light by the government in late-October 2019 and will be undergoing further deliberation between Malaysia and Singapore until April 2020.

“On the Penang Transport Master Plan (PTMP), SRS Consortium (the project delivery partner or PDP) announced that it would sign and formalise the PDP agreement with the state government in a few weeks’ time, and upon signing, the PDP will begin the design work for the RM46bil PTMP and award the LRT contract from mid-2020 onwards, subject to the financing structure, ” he said in a note yesterday.

Farhan, however, remained neutral on the domestic construction sector as he maintained his “market weight” rating.

He expects only a handful of the previously reinstated mega projects to resume, which would likely not excite the sector or boost sector earnings growth.

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