KUALA LUMPUR: Affin Hwang Capital research has downgraded its call on the construction sector to underweight due to the political uncertainty following the resignation of Prime Minister Tun Dr Mahathir Mohamad.

According to the research house, the sector is susceptible to changes in government policies and delays in public-sector project awards.

"The construction companies are reliant on public sector projects to replenish construction order books as construction demand from the property sector remains weak.

"There is also the risk of a change in government that could lead to changes in policy on the government contract awards and infrastructure concessions," it said.

Among stocks under its coverage, it downgraded Gamuda (TP: RM3) and HSS Engineering (78 sen) to sell calls while maintaining SunCon ( as its preferred pick in the sector with a buy call.

It retained a buy call on Gabungan AQRS on its undemanding valuation but dropped it as a top pick.

Meanwhile, it included AME and Taliworks among its small-cap top buys.

Affin Hwang noted that the KLC Construction index typically underperformed the KLCI during period of political uncertainty caused by changes in the Prime Minister or government.

The KLCON index underperformed the KLCI by 5-7% over a one-month period after the change of Prime Minister in 2003 and 2009, and underperformed the benchmark index by 37% following the change of government in 2008.

The degree of underperformance was reliant on whether there will just be a change in Prime Minister or government.

"The potential change in leadership or government could lead to further delays in rolling out infrastructure projects," it added.