KUALA LUMPUR (Jan 4): The Malaysian construction sector is expected to see downward normalisation this year, in which the domestic contract is projected to come in at RM25 billion, after achieving a record higher base in 2016, according to Hong Leong IB Research (HLIB).

In a note today, HLIB analyst Jeremy Goh said for the full year 2016, the domestic contract awards surged up to RM56.4 billion with a robust growth of 158% year-on-year (YoY), surpassing the previous full year high of only RM28 billion in 2012.

“Major contributors for 2016 were mass rapid transit (MRT) Line 2 at RM24.3 billion (43%) with the tunnelling works of RM15.5 billion being the single largest contract awarded, Pan-Borneo Highway (PBH) made up RM10 billion (18%) and other major highways amounted of RM7.6 billion (13%),” Goh said.

He said the domestic contract in 4QFY2016 stands at RM6.8 billion (-43% QoQ, -9% YoY) and the steep QoQ (quarter-on-quarter) decline was due to a high base witnessed in 3QFY2016 at RM11.9 billion, due to the award of 5 Pan Borneo Highway (PBH) contracts totalling RM6.9 billion.

While the -9% YoY decline was due to a fall in the absolute number of contracts awarded (35 to 27), partially offset by a higher average contract value (RM212 million to RM250 million).

Following the strong job wins in 2016, most contractors are sitting on an all-time high orderbook which should translate to strong earnings delivery this year, HLIB, however, maintained its “overweight” rating on construction sector.

“While we expect a downward normalisation in job flows for 2017,” he said.

Goh said the top large cap construction pick is Gamuda maintained “buy” rating with target price of RM5.67, as it is set to see an earnings revival in FY17 and potentially hitting a new high in FY2018, while the small caps are GKent maintained “buy” rating with target price of RM3.77 and Pesona maintained “buy” rating with target price of 81 sen, as both offer superior earnings growth, strong return of equities (ROEs) and net cash positions.

In line with the positive outlook for the construction sector, several stocks in the sector stood out at mid-morning today. 

Among them, Protasco Bhd climbed six sen or 5.26% to RM1.20. Eversendai Corporation Bhd increased by two sen or 3.39% to 61 sen, Jaks Resources Bhd rose three sen or 2.97% to RM1.04, and Crest Builder Holdings Bhd up two sen or 2.22% to 92 sen. — theedgemarkets.com

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