Affin Hwang Capital cautiously optimistic on local construction sector

Published by The Sun Daily• 04/02/2021• 10:05pm

Affin Hwang Capital expects the government’s infrastructure spending to focus on building more public facilities such as hospitals, housing for the B40 income group, and the revival of mega infrastructure projects.

KUALA LUMPUR: Affin Hwang Capital is cautiously optimistic on the local construction sector, mainly due to the government’s move to push for higher infrastructure spending amid the Covid-19 pandemic, said its senior associate director of research, Loong Chee Wei.

However, plans to execute the projects may be delayed to the second half (H2) of the year, given the third wave of the Covid-19 pandemic in the country, he said.

“There will be some concern on the government’s budget constraint, and this may lead to more public-private partnership projects as the private sector can contribute to capital and fund some of the infrastructure projects,“ Loong said in a virtual briefing titled “2021 Economic Outlook & Construction Sector Update – Building The Way Towards Recovery” today.

The investment banking group expects the government’s infrastructure spending to focus on building more public facilities such as hospitals, housing for the B40 income group, and the revival of mega infrastructure projects.

He said infrastructure projects worth RM130 billion were expected to kick off in H2 this year, and these may include the Klang Valley MRT Line 3, the Sabah Pan Borneo Highway, Kuching Light Rail Transit, and Penang South Reclamation.

“In terms of contract awards, we have seen that they have been awarded to companies in H1 already, and expect that it will accelerate in H2, which will improve the prospects for a lot of major contractors,“ said Loong.

He also said that although the order books for construction firms may be delayed due to the late contract awards and property sector downturn, most of the companies still had large order books of over two times construction revenues, which provided some earnings visibility and would sustain their earnings for this year.

“We also believe that when the order books are being replenished, the positive impact would more likely benefit the small and mid-cap contractors as valuations are more attractive and given the smaller contract sizes that are expected to be awarded by the government,“ he said. – Bernama