MCO 2.0 and political uncertainties weigh down on construction sector recovery — CGS-CIMB

TheEdge Mon, Jan 18, 2021 11:34am - 3 years View Original


KUALA LUMPUR (Jan 18): The construction sector’s recovery could remain muted due to expectations of a catalyst-driven rebound in the first half of 2021 (1H21), said CGS-CIMB.

It also expects a 30% to 40% cut in original cost of the Mass Rapid Transit Line 3 (MRT 3) and High Speed Rail (HSR) plan, said its analyst Sharizan Rosely.

In a note today, he said the sector's outlook for 1H21 failed to excite.

“Developments from end-2020, i.e. the termination of the KL-SG (Kuala Lumpur-SIngapore) HSR bilateral agreement, MCO 2.0 (second movement control order) and the declaration of a state of emergency, have dampened our earlier positive expectations of a catalyst-driven 1H21,” he said.

“At this juncture, we feel that the speed of the construction sector’s recovery could remain muted but still backed by Budget 2021’s RM37 billion direct infrastructure allocation,” he added.

His channel checks after the termination of the HSR suggested that a revised version of the MRT 3 project could be given the green light ahead of ongoing feasibility studies of the alternative KL-Johor Baru HSR line.

According to him, the government’s new plan to roll out an alternative HSR project that is 30% cheaper than the original RM60 billion cost, and which will start two years earlier (likely in 2022), remained unchanged.

He also added that the new MRT 3 proposal may see up to a 40% cut in the total original cost of RM45 billion upon the removal of certain underground scopes.

“Our estimated RM63 billion to RM74 billion in combined potential civil works (versus the original estimate of RM105 billion) is a huge catalyst for the job outlook but our reservations about the MRT 3 and new HSR projects lie in timing risks/uncertainties brought about by the political landscape, which could remain in a state of flux till 2H21,” he added.

Due to heightened political uncertainties, the potential negative impact of record-high Covid-19 cases on earnings and risks from a prolonged MCO 2.0, he maintained his "neutral" call on the construction sector.

YTL Corp Bhd ("add"; target price [TP]: 85 sen), IJM Corp Bhd ("add"; TP: RM1.81), and Malaysian Resources Corp Bhd (MRCB) ("add"; TP: 56 sen), which are seen as beneficiaries of rail news recovery, remained as his top picks.

At 10.46am today, YTL was down one sen or 1.39% at 71 sen, valuing the group at RM7.9 billion. IJM was unchanged at RM1.64, giving it a market capitalisation of  RM5.94 billion. Meanwhile, MRCB had declined one sen or 2.38% to 41 sen, valuing the group at RM1.85 billion.

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CIMB 6.550
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