The pending implementation of mega projects, especially in Sarawak, will likely provide a boost on the state's construction outlook next year, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) projected in its sector update.
MIDF Research expected construction works mainly for MRT2, LRT3 and Pan Borneo Highway (PBH) to pick up pace soon following the green light granted by the government to complete the projects.
The research arm noted that despite significant cost reductions for both MRT2 and LRT3, the combined contracts amount was still significant at RM41.5 billion, providing earnings visibility beyond current year 2020 (CY20).
"On PBH, we have seen some improvements in revenue recognition by the related contractors namely KKB Engineering Bhd (KKB) and Cahya Mata Sarawak Bhd (CMS)," MIDF Research said.
"Moving forward, we expect the recovery in investors' sentiment will be heavily weighted by the development potential in East Malaysia.
"In 2019, we expect the pending implementation of mega projects especially in Sarawak will likely provide a boost on the state's construction outlook.
"The potential roll out of Sarawak infrastructure packages includes the Coastal Road, the Second Trunk Road and the state's water grid projects worth RM9.1 billion."
In its update, MIDF Research maintained 'positive' on the construction sector.
Despite the near-term directional swing, the research arm saw the headroom is still ample for the sector to grow.
"This was mainly a recognition of stable development expenditure (DE) allocation in Budget 2019, continuation of mega projects such as LRT3, MRT2 and PBH, along with the pending implementation of infrastructure projects, namely the Coastal Road, Second Link Road and the State's Water Grid projects."
Of the few stocks which MIDF Research believed were trading at attractive levels, these included CMS and KKB. The research arm had 'buy' calls on CMS and KKB, which it opined will benefit from the pending roll-out of Sarawak infrastructure developments.