Domestic construction contract awards slump in Q3

PETALING JAYA: The Malaysian construction sector saw an 81% year-on-year (yoy) slump in domestic contract awards in the third quarter (Q3) of 2019 to RM1.1 billion, bringing the nine-month sum to RM9.2 billion or a 36% decline compared with the corresponding period of 2018.

And now, the sector is pinning hopes on Budget 2020 with potential announcements on infrastructure projects, possibly the Johor Baru- Rapid Transit System Link (RTS), MRT3 and - High Speed Rail (HSR), according to HLIB Research.

Elsewhere, contracts that are expected to be rolled out are six bridge deals with a combined value of RM2.4 billion under the Coastal Road.

“Other material developments related to the sector are the ramp-up of LRT3 project (RM16 billion) in Q4 19 and potential signing of a PDP (project delivery partner) agreement for the Penang Transport Master Plan by year-end (RM24 billion).”

The research house said the decline in contract awards was due to smaller average contract size of RM90 million (-22% quarter on quarter, -59% year on year) compounded by contraction in number of contracts awarded which totalled 12 in the third quarter of 2019.

Infrastructure jobs made up 31% of domestic contracts for the nine-month 2019 period with the balance from building jobs. The decline in contract value and lower proportion of infrastructure works was attributable mainly to holding back or downsizing of infrastructure projects post 14th General Election (GE14).

“Year to date, all Sarawak-related contracts are infrastructure works which testify to our view that momentum of project flows in Sarawak is gaining traction as the next state elections must be held before September 2021. Infrastructure contracts that are expected to roll out in Q4 19 are six bridge contracts with combined value of RM2.4 billion under Sarawak Coastal Road,” said HLIB.

Meanwhile, foreign contract awards in third quarter 2019 spiked to RM918 million while cumulative nine-month 2019 foreign contracts surged more than sixfold due to domestic contractors shifting focus overseas post-GE14 and absence of foreign contracts in second quarter 2018.

HLIB Research remains “neutral” on the construction sector despite the positive news flow on several project revivals, including the East Coast Rail Link (ECRL), and potentially MRT3.

“We believe the worst is over for the construction sector but this has been largely reflected by the rally YTD with the Bursa Construction Index up 31%.”

IJM Corp Bhd remains its top pick in the large-cap space as a beneficiary of the ECRL via construction contracts and the positive spillover effect to Port (60% stake) and Malaysia- Industrial Park (20% stake).

“Within the mid-small-cap space, we like Sunway Construction Group Bhd (SunCon) as a well-managed pure construction play that is able to bid competitively within the increasing open tender landscape.”

Source: The Sun Daily

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