• In 3QFY24, companies under coverage largely met expectations, supported by robust orderbooks, strategic diversification and consistent contributions from key projects. AQRS, however, fell short of expectations due to one-off costs. Even so, its strong orderbook and pipeline of property development projects are expected to underpin its future growth.

• We believe the construction sector will remain resilient with companies actively leveraging robust orderbooks and strategic diversification to drive growth. Meanwhile demand from private sector, public-private partnerships and mega-projects like the Penang LRT anticipated to drive growth, sustaining an optimistic outlook overcoming cost and regulatory challenges.

• We maintain our OVERWEIGHT stance for Construction Sector, with a BUY call for Gamuda (TP: RM9.82), Kerjaya (TP: RM2.30), and AQRS (TP: RM0.40), meanwhile HOLD for SunCon (TP: RM4.27).

Most Players Thrive as AQRS Faces Setbacks

In the recent quarter, AQRS fell short of market expectations, with earnings impacted by one-off costs, including liquidated ascertained damages and settlements related to legacy projects. Despite these setbacks, we believe the company’s sizable orderbook and high-potential property developments with significant GDV remain pivotal for its long-term growth prospects. In contrast, other construction players under coverage delivered performances inline with expectations. To recap, Gamuda concluded its FY24 with an impressive 62.4% YoY revenue growth, driven by strong contributions from its overseas operations. For 3QFY24, Kerjaya achieved record profits, supported by a robust orderbook, and declared a total YTD dividend of 12.0sen. Meanwhile, SunCon capitalized on its data center projects to mitigate weaknesses in the precast segment, ensuring steady earnings visibility.

Strong Momentum Backed by Private Demand and Infra Expansion

The construction sector remains resilient, anchored by strong orderbooks and strategic diversification by the industry players. Private sector demand, particularly for data centers and property developments, continues to drive growth, as reflected in the solid performances of SunCon and Kerjaya. Public-private partnership (PPP) initiatives and government-backed mega-projects, including the Penang LRT and renewable energy ventures, further bolster the sector's mid to long-term prospects. Despite persistent cost pressures and regulatory challenges, the sector’s outlook remains promising, supported by sustained demand across domestic and regional infrastructure projects.

Maintain OVERWEIGHT Call on Construction

We maintain our OVERWEIGHT stance for Construction Sector, with a BUY call for Gamuda (TP: RM9.82), Kerjaya (TP: RM2.30), and AQRS (TP: RM0.40), meanwhile HOLD for SunCon (TP: RM4.27). This recommendation is driven by ongoing momentum in both domestic and regional infrastructure developments, alongside growing private sector demand.

Source: BIMB Securities Research - 3 Dec 2024