PETALING JAYA: The construction sector has been downgraded on what analysts call “less upbeat prospects” following the annoucement of the 12th Malaysia Plan (12MP).

       In its report to clients on the sector, Kenanga Research said in light of the weaker prospects for the local infrastructure space coupled with the government’s less than ideal fiscal position, it was choosing to “dial down” valuations for key infrastructure contractors under its coverage namely Gamuda Bhd and IJM Corp Bhd.

       “That said, despite the lowered valuations, at current share price, these two counters still command an ‘outperform’ call.

       “We think there is a higher probability for the government to endorse the monetisation of highways (by Gamuda/IJM) to rechannel these proceeds to new projects in light of the government’s weaker fiscal position,” it told clients.

       Yesterday, the government unveiled the 12MP with a massive RM400bil as development expenditure, over 50% higher than what was allocated for the 11MP.

       The 12MP is scheduled to run from 2021-2025.

       Despite the massive figure, analysts pointed out that there was no priority given to fresh mega construction work.

       “While development expenditure allocation for 2021-2025 is massive at RM400bil, priority was not placed towards new mega infrastructure projects.

       “Key projects mentioned were either a continuation of existing projects or a reiteration of previously planned projects such as the Gemas-JB Electrified Double Track, Klang Valley Double Tracking, East Coast Raik Line, Rapid Transit System, Pan Borneo, Central Spine Road and Kota Bharu – Kuala Krai Highway projects, “ Kenanga noted.

       All in, it said it it believed the governments’ weaker fiscal position post- pandemic would mean slower rollout of projects, smaller quantum or spaced-out contracts, and a higher reliance of private finance initiative funding from contractors.

       It has downgraded the sector from “overweight” to “neutral”.

       JF Apex Research was slightly more optimistic stating that the construction sector was one of the main beneficiaries of the 12MP.

       However, the government will only kick start any new mega projects from 2023 onwards to focus on the national recovery plan which is ongoing as a result of the Covid-19 pandemic, it pointed out.

       “We believe the construction sector will come under investors’ radar next year,” JF Apex said.

       “Surprisingly, the highly-anticipated MRT3 was not mentioned,” the research house pointed out.

       A specific facilitation fund for infrastructure projects will be established under the Public Private Partnership 3.0 model, it noted.

       In its report, Kenanga said based on its understanding, some10% to 30% of MRT3’s funding needs would be funded by the private sector to alleviate the country’s fiscal burden.

       “However, given the protracted recovery from Covid-19, we believe the current fiscal space is less accommodative and we do not discount the possibility that higher private funding needs will be required in order to expedite the commencement of MRT3.”

       Its estimated cost for MRT3 stands at around RM32.9bil.