KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research has maintained its “neutral” call on the construction sector with Sunway Construction Group Bhd (SunCon) and Kimlun Corp Bhd as its top picks.
The research house said the fluidity of looming elections could weigh on sector sentiment with investors adopting a wait and see approach.
“Sector valuations are on the lower end at 12.9x P/E NTM EPS (5-year average) and 0.65x P/B (-1SD 5-year range). Recent news flow on critical projects like MRT3 is encouraging but we remain cautious on timeline and overall sector earnings execution amidst ongoing virus spread,” it said.
HLIB said 4Q21 domestic contract awards totalled RM6.3bil (54% QoQ, 169% YoY). 2021 featured stronger contributions from water, affordable housing, solar and road projects; private jobs remained flattish.
“Moving ahead, we cautiously expect to see gradually improving contract flows as Malaysia progressively enters the endemic stage.
“Our expectations are for a recovery in private sector opportunities and ongoing rollouts of existing projects like ECRL, PBH Sabah & Sarawak, Johor-SG RTS, CSR to support job flows in 2022,” HLIB said.
It is also looking forward to the rollout of Sarawak Metro which costs RM6bil.
The Home Ownership Campaign (HOC) and low interest rates lifting property sales in 2021, could see a ramp up in private sector contract awards, considering the repeated award delays in 2021.
“The downside to this though is dampening of sentiment from HOC expiry, interest rate hikes and rollout delays due to high materials price,” it said.
“On the public sector side, higher DE does bode well for the general tender environment even with new big ticket projects missing.
“Implementation of existing mega projects should also continue to selectively present opportunities for contractors but we do note that most packages under existing projects have been tendered out therefore limited impact on sector earnings prospects,” it added.