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Analysts positive on construction sector outlook

THE construction sector is expected to grow by 3.7% year on- year (YoY) next year largely due to acceleration and the revival of mega projects, according to TA Securities Holdings Sdn Bhd.

The research house, however, lamented there were no major positive surprises for the construction sector in Budget 2020.

“Mega projects mentioned in the budget are either ongoing (such as East Coast Rail Link, Mass Rapid Transit Line 2 (MRT2), Light Rail Transit Line 3 and Pan Borneo Highway), or has already been made known to the public earlier (such as Bandar Malaysia and Johor Baru-Singapore Rapid Transit System (JB-Singapore RTS)).

“Non-inclusion of MRT3 and Penang Transport Master Plan projects in this budget is a disappointment,” it said in a research note.

On Friday last week, Finance Minister Lim Guan Eng highlighted RM56 billion had been allocated for development expenditure, slightly higher than RM54.7 billion tabled in the last budget (Budget 2019).

TA Securities believes the higher allocation on development expenditure will accelerate the implementation of projects with strategic and high-multiplier impact such as constructing railways and roads, upgrading schools and clinics, and improving the suburban broadband infrastructure.

“Construction players should still benefit from the various urban and rural development projects,” TA Securities noted.

TA Securities foresees a neutral impact on the construction sector from the recently announced Budget 2020 and maintained its “Underweight” call on the sector.

Inter-Pacific Research Sdn Bhd, in a report yesterday, stated the sector will benefit from new projects like the JB-Singapore RTS and RM8.3 billion Klang Logistics Corridor.

Projects like the Serendah- Port Klang Rail Bypass and a dedicated privatised highway for commercial vehicles connecting Northport and Westport will see companies like Westports Holdings Bhd, MMC Corp Bhd (holding company of Pelabuhan Tanjung Pelepas Sdn Bhd, Northport (M) Bhd and Penang Port Sdn Bhd), Gamuda Bhd, Sunway Construction Bhd, Muhibbah Engineering (M) Bhd and Gabungan AQRS Bhd benefitting from them.

Sime Property Bhd, the largest landowner on Carey Island, will gain as well.

MIDF Research stated despite the higher development expenditure, there is still lack of catalysts for the construction sector as major mega projects remain shelved.

“There was no mention or update on shelved mega projects namely high speed rail and MRT3, which we think could have fuelled meaningful optimism in the near term,” MIDF Research said.

However, the research house believes the construction sector will increase by 8% to 13% next year based on higher allocation to cover the developments of rural connectivity, general infrastructure and East Malaysia.

MIDF Research has placed a “Neutral” call on the construction sector as it expects smaller construction companies to derive more benefits in relative terms.

“Projects like highways, railways, airport expansion, road extension and other public infrastructures will continue to spur construction as well as economic activities in 2020,” it said.



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