THE Pakatan Harapan government’s revival of some legacy mega infrastructure projects comes amid innumerable economic and fiscal challenges, but is timely because of the worrying economic malaise, analysts say.

Although the projects will exert additional pressure on the nation’s balance sheet, they are expected to be catalytic, injecting huge economic benefit to the sluggish economy and boosting demand for construction services and materials when private consumption is lethargic.

RHB Research Institute Sdn Bhd Asean economist Peck Boon Soon likens the revival of the projects to a kick-starting of the economic engine that has been left idle for a while owing to the change in government after the 14th general election.

“Now with the projects being revived, the economy will restart. This is very important for Malaysia as, at the moment, the other economic engines are not doing very well.

“Our export sector is not doing very well, while demand for private housing is still sluggish. So there is a need for the government to speed up the economy,” he told The Edge last Thursday.

Having put the projects on ice pending a review of contractual costs, structures and financing, PH has now decided to proceed, likely on the basis that while they are still too costly, reviving them is the lesser of two evils.

Already, the share prices of companies involved in construction and construction materials, as well as a few property developers, have started to climb on Bursa Malaysia.

The Bursa Malaysia Construction Index has rallied 42% so far this year to 221.34 points, outperforming the benchmark FTSE Bursa Malaysia KLCI, which declined 3.17% to 1,637.03 points year to date as at last Friday’s close.

Gains in the share price of infrastructure company Malaysian Resources Corporation Bhd (MRCB) are nearly double the average gains of construction counters. The share price soared more than 80% year to date to RM1.12 as at last Friday.

MRCB is the turnkey contractor for the Bandar Utama — Johan Setia Light Rail Transit Line 3 project (LRT3). It was also one of the infrastructure projects reviewed by the government post-GE14.

The construction cost of LRT3 was slashed to RM16.6 billion from RM31.7 billion after the project was downscaled. For example, the order of 42 sets of 6-car trains was trimmed to 22 sets of 3-car trains.

George Kent Holdings Bhd, MRCB’s joint-venture partner in the project, has also seen a stunning 52.6% increase in its share price year to date, closing at RM1.29 last Friday.

The government’s decision to revive the East Coast Rail Line (ECRL) has benefited shareholders of mid-sized construction company Gabungan AQRS Bhd, whose share price rallied by more than 73% year to date to close at RM1.49 last Friday.

AQRS had tendered for some of the ECRL work packages before the project was temporarily halted. In addition to contract work, AQRS is also expected to benefit when Kuantan is better connected to the Klang Valley, as it owns several parcels of land in the state.

Another advantage is its involvement in the development of the Pahang state government’s new administrative centre in KotaSAS, where one of the ECRL stations is going to be located.

Given the share price rally in construction stocks, is there still room for further upside? Construction analysts remain neutral.

In a recent client note, CIMB Research analyst Sharizan Rosely says the sector’s contract outlook is set for a recovery phase, underpinned by the ECRL and Bandar Malaysia projects. He anticipates more news flow on the outlook for new tenders in the second half of the year.

“In the medium term, we would focus on the new tender phase for the 40% local content requirement (RM17.6 billion) for the RM44 billion ECRL, which should benefit rail contractors across the board.

“The mitigating factor among contractors, based on our checks, is that although contract value could be sizeable, potential subcontracting margins may not be lucrative,” he says in an April 25 research note.

The research firm advises investors to switch to sectoral laggards such as Muhibbah Engineering (M) Bhd and WCT Holdings Bhd for potential exposure to the ECRL project. Muhibbah is among the few construction firms whose share price have yet to rally.

Meanwhile, WCT’s share price of RM1.10 as at last Friday’s closing is still far below its five-year peak of RM2.49 reached on May 8, 2017, notwithstanding a 64% gain this year.

The prospect of a revival of the Kuala Lumpur–Singapore high-speed rail (HSR) has prompted an upgrade of the property sector.

RHB Research Institute Sdn Bhd analyst Loong Kok Wen upgraded the outlook to “overweight” from “neutral” on April 22.

“While the revival of Bandar Malaysia may not help to stimulate fundamental demand for property in the near term, the potential resumption of HSR should help recover some demand and spur market sentiment.

“The sector is currently trading around -1SD from the historical discount to revised net asset value mean. We foresee renewed interest in property stocks in the coming months, but we advise investors to be selective,” she says, adding that the firm prefers stocks that have an angle to the HSR project, have a strong balance sheet and have little unsold property stock.

Companies that are expected to benefit from the revival of the HSR include UEM Sunrise Bhd, due to its large undeveloped, freehold land in Gerbang Nusajaya, and IOI Properties Bhd, which has about 1,000 acres in Ayer Keroh, Melaka, and some 700 acres in Putrajaya.

The Iskandar Puteri HSR station is slated to be in Gerbang Nusajaya while a stop has been proposed for Ayer Keroh, as Melaka is a popular weekend getaway destination for many people from the Klang Valley and Singapore.

UEM Sunrise’s share price surged to 94.5 sen last Friday, adding 42% to its market value. But IOI Properties’ share price is still in negative territory, having declined 11.7% since the start of the year to last Friday’s close of RM1.35.