Construction Sector on Cusp of Boom?
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Malaysia’s construction sector may be on the cusp of a boom as multi-billion ringgit infrastructure projects are expected to be announced in the next 12 months.
The projects are expected to be the next major catalysts for the sector-linked stocks to rise higher, boosting the index’s upturn that began early this year on news that the RM44 billion East Coast Rail Link was revived.
Analysts said the sector did not disappoint since then, with Bursa Malaysia’s FBM Construction Index gaining nearly 26 per cent.
With more projects expected to be announced, they predicted that the index could rise higher to touch its last peak prior to the last General Election.
Some analysts believe that the High Speed Rail could be revived in the next 12 months with ECRL’s overhaul setting a precedent for the electrified rail project that links Malaysia and Singapore.
The New Straits Times has also been made aware that a multi-billion ringgit infrastructure project in Sabah that links to Pan Borneo Highway will soon be announced to the public.
According to sources, the tender for the project looks set to be out this year.
Bloomberg Intelligence infrastructure industry analyst Denise Wong said Malaysia may bring back plans for the 350km Kuala Lumpur to Singapore HSR over the next 12 months, after having revived the ECRL and Bandar Malaysia transport hub development projects.
She said Malaysian builders such as Gamuda Bhd, YTL Corp Bhd, Malaysia Resources Corp Bhd and IJM Corp Bhd may get a bigger share of a revamped HSR project even as the total construction cost is reduced.
“The HSR project may revive as cost hurdles ease with a design overhaul and a price cut. China and Singapore could also share more of the operational burden to expedite a restart. Malaysian contractors may get a bigger share of the work,” Wong said in a note.
Malaysian Association of Technical Analysts advisor Nazarry Rosli said looking at the performance of some of the construction stocks, there was more room for them to rise.
“With the ongoing mega projects like ECRL, it will have a direct positive impact to the construction sector,” he said.
“I believe the HSR project will continue to complement the Bandar Malaysia project,” Nazarry added.
Rakuten Trade head of research Kenny Yee said HSR and other projects, yet to be announced, would lift the construction index to reach its last peak a year ago.
In a report, the research house expects there to be more upside despite the cautious stance from some of its peers.
The firm's positive stance stems from the fact that the sector thrives on positive newsflow.
Rakuten maintained a “buy” on Gamuda Bhd, IJM Corp Bhd and Econpile Bhd.
It said laggards like TRC Synergy Bhd, Gabungan AQRS Bhd, Vizione Holdings Bhd, George Kent Malaysia Bhd and Crest Builder Holdings Bhd could potentially offer substantial upside.