Analysts Positive On Construction Sector

Positive developments in the construction sector are being driven by the upcoming MRT3 tender awards by the end of 2022 and Prospects are also looking favourable in Sarawak with positive job flows expected

Analysts Positive On Construction Sector
Construction sector to see manageable cost headwinds and the potential rollout of infrastructure projects - Photo by Etienne Girardet / Unsplash

Analysts on Friday say they maintain a positive recommendation on the construction sector in Malaysia, particularly with the rollout of MRT3 tender awards by the end of 2022.

"We reiterate our POSITIVE recommendation on the construction sector in view of the manageable cost headwinds and the potential rollout of infrastructure projects in Malaysia, with positive developments being driven by the upcoming MRT3 tender awards by the end of 2022.

"Prospects are also looking favourable in Sarawak with positive job flows expected, especially due to its RM100b capital injection by 2030.

"We are also looking forward to the potential revival of the axed KL-Singapore High Speed Rail (HSR), which may be a key focus area of the new Government after the general election," says MIDF.

With all the ongoing and upcoming developments, the analysts are staying POSITIVE on the construction sector, with a preference for companies with robust balance sheets and strong overseas presence, namely Gamuda (BUY, TP: RM4.71), IJM Corp (BUY, TP: RM2.18) and Sunway Construction (BUY, TP: 1.87), all of which are front-runners for the MRT3 main contracts.

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Price of construction materials down

The analyst firm also says building materials price are going down and saw a consecutive decline in the last four months. This shows that materials prices, such as steel bars and cement, does not pose a problem for the industry.

"We reiterate our view as per our previous reports that we are not overly concerned about the building materials price headwinds being a huge risk to the construction sector.

"While prices still remain elevated, we are comforted by the declining trend that has been observed over the past few months.

"We expect margins to continue improve in 4Q22 onwards though a dampener may be due to higher labour cost due to a shortage of foreign workers as contractors are paying more for critical projects, but we expect this situation to improve moving forward as construction is among the sectors that are allowed to hire from all 15 permitted source countries," it says.