KUALA LUMPUR (Oct 8): CGS-CIMB Research foresees a muted period in October for new developments in mega contracts and the Economic Recovery Plan (ERP), with the short-term focus shifting to Budget 2021 in early November.

In a note today, Sharizan Rosely said the research house is toning down its expectations of a news flow-driven month in October for the construction sector following new indications from the Minister in the Prime Minister’s Department (Economic Affairs) Datuk Seri Mustapha Mohamed during an interview with Edge Weekly.

The minister said ERP, which earlier targeted to be announced in October, is now delayed to December. The timing of the ERP is therefore slated to be after the tabling of Budget 2021 in early-November.

The minister acknowledged that formulation of Budget 2021 will need to take into account two key challenges for economic recovery: supportive allocations to address the impact of Covid-19 across all sectors, and development allocations, including infrastructure, in line with the government’s economic recovery plans.

“At this juncture, we expect Budget 2021 to signal the government’s plans on two mega contracts: Mass Rapid Transit Line 3 (MRT 3), and Kuala Lumpur to Singapore High Speed Rail (HSR), and feature selected projects in the previous Budget 2020 that was delayed due to Covid-19 and the Movement Control Order,” said Sharizan.

“For MRT 3, the government is still weighing several implementation options with no decisions made thus far while the expiry of the end-Dec review period for the HSR is unchanged,” he added.

Given the delay in the ERP, Sharizan foresees a pick-up in mega project newsflow from November.

“We remain optimistic on the potential outcome of the HSR ; which may emulate the implementation model of the JB-Singapore Rapid Transit System,” he said.

While Sharizan is positive on the share price outlook for selected rail contractors on the back of a recovery in sector newsflow post the Budget 2021, he stays Neutral on the overall sector, given the lingering political uncertainties, which may impact the timing and approvals of mega project rollout, and limited details on construction sector recovery plans due to the delayed ERP to December.

YTL Corp Bhd and Malaysian Resources Corp Bhd remain his preferred plays on a potential recovery of HSR and Bandar Malaysia newsflow in 4Q20. He also sees IJM Corporation Bhd as beneficiary, as the likely relaunch of MRT 3 could boost its rail tender prospects.

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