KUALA LUMPUR (April 6): MIDF Research has re-affirmed its “positive” stance on the construction sector after the Mass Rapid Transport 3 Circle Line (MRT3) was given the go-ahead by the Ministry of Transport last week.
In a note today, the research house said it is prime time to turn focus on the construction sector, adding that its top picks were: Gamuda Bhd (Buy, target price: RM4.20), Sunway Construction Group Bhd (Buy, TP: RM2.14), Gabungan AQRS Bhd (Buy, TP: 85 sen), Cahya Mata Sarawak Bhd (CMSB) (Buy, TP: RM2.80), and Malayan Cement Bhd (Buy, TP: RM3).
It said this much-anticipated revival of the domestic MRT3 project and its potential roll-out will boost the positive sentiments on the sector and order book replenishment prospects moving forward.
“With an improving fiscal ability and expansionary Budget 2021, we posit that the government might expedite major infrastructure projects to pump prime the economy that bodes well [for] the sector.
“Current sizeable outstanding order book to support earnings recovery momentum and continuous overseas expansion by local contractors to boost order book are key catalysts for construction upcycle,” it said.
MIDF said it expects the impending roll-out of MRT3 in 2HCY21 is expected to catalyse the sector by lifting market sentiments positively in terms of higher order book replenishment prospects and earnings recovery momentum for the construction players under its coverage.
“We opine the major early beneficiary to be Gamuda, premised on MMC-Gamuda to be the frontrunner in clinching the MRT3 deal as turnkey contractor or PDP (project delivery partner) as well as contractor for the tunnel works (we estimate to be worth almost half of the contract value),” it said.
MIDF Research also highlighted that the clearer direction and extension of East Coast Rail Link (ECRL) was a positive after Transport Minister Datuk Seri Dr Wee Ka Siong confirmed yesterday that ECRL’s Section C (i.e. Mentakab to Port Klang via Bentong, Gombak and Serendah) will revert to its original alignment.
The research house said while the 12th Malaysia Plan is postponed to a later date until Parliament reconvenes, it does not discount the possibility of more snippets to be unveiled in 2QCY21 for mega projects such as MRT3, a potential domestic KL-JB High Speed Rail (HSR), Klang Valley Double Tracking-Phase 1 (KVDT1) and Pan Borneo Highway.
It said with the expected completion of MRT2 by end-2022 and the scrapping of the KL-Singapore HSR project, it anticipates the MRT3 to be the key low-hanging fruit project to be rolled out potentially in 2HCY21.
Commenting on the Penang Transport Master Plan (PTMP) in 2021 and onwards, the research house said the Gamuda-led SRS Consortium PDP will proceed with the Penang South Island reclamation project of Island A.
“Given Gamuda’s healthy balance sheet and relatively low net gearing, we opine the financial standing of Gamuda to remain manageable depending on the rate of reclamation and market absorption of the reclaimed land.
MIDF Research also said East Malaysia’s infrastructure play continues to remain exciting.
“We reaffirm our view on the solid growth prospects in East Malaysia given the bigger share of the federal budget allocation in 2021 of about RM5.1 billion and RM4.5 billion in Sabah and Sarawak respectively for the construction and upgrading works for largely water, electricity, and road infrastructure,” it said.
The research house said the potential beneficiaries in East Malaysia are CMSB and Hock Seng Lee Bhd.