AmInvestment keeps 'underweight' on construction

TheStar Mon, Jan 04, 2021 09:06am - 3 years View Original


KUALA LUMPUR: AmInvestment Bank Research remains pessimistic over the earnings outlook of the local construction sector as it believes the government will be unlikely to roll out new public infrastructure projects over the short term.

The research house, which has an underweight call on the sector, said the tabling of the 12th Malaysia Plan in March, which will earmark mega public infrastructure projects to be implemented in 2021 to 2025, will be a non-event.

"We maintain our view that the government will have very limited room for fiscal manoeuvre in 2021 given the elevated national debt, even before the pandemic.

"The government’s fiscal position has been weighed down further by the economic impact of the pandemic (including reduced petroleum revenues), as well as the massive relief spending to cushion the economic impact of the pandemic," it said in its sector update.

Among the headwinds faced by the construction sector, AmInvestment said the market does not foster pricing power due to contactors undercutting each other over limited contracts.

Construction firms are also subject to higher operating cost and lower efficiency due to the restrictions and additional expenses incurred for upgrading workers' housing and higher operating risk resulting from the pandemic.

AmInvestment noted that Sarawak has resorted to state reserves to fund RM11bil of public insfrastructure projects, which include the Coastal Road, Second Trunk Road and 11 mega bridges.

The state government has also planned to fund the Penang South Reclamation component under the Penang Transport Master Plan project via a bridging loan from the project delivery partner.

Meanwhile, construction players are looking to overseas markets owing to the uncertainty of the rollout of public infrastructure projects locally.

"We may upgrade our underweight call on the sector to neutral/overweight if the government decides to forge ahead with the implementation of key public infrastructure projects, despite the weak fiscal position," said AmInvestment, which does not have a top pik for the sector.

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