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Construction sector to drive growth

Source from: New Straits Times, Original Article

KUALA LUMPUR: Malaysia’s construction sector is poised for an upcycle with the potential revival of Mass Rapid Transit 3 (MRT3) project and expansionary 2021 Budget.

Some analysts expect the sector’s gross domestic product to grow about 15 per cent this year, reversing the 20 per cent contraction in 2020.

MIDF Research said the potential MRT3 rollout would boost sentiment on the sector.

The sentiment will also be fuelled by the government’s largest ever development expenditure in its expansionary 2021 Budget as well as a potentially strong earnings recovery and order book replenishment.

“We expect the impending rollout of MRT3 in the second half of 2021 is expected to catalyse the sector by lifting market sentiments in terms of higher order book replenishment prospects and earnings recovery momentum for the construction players under our coverage,” it said in a report.

As the government prioritised development expenditure (DE) on high impact projects, MIDF Research expects a growth of 14.9 per cent year-on-year (Y-o-Y) for the construction sector’s gross domestic product (GDP) in 2021.

This will signal a strong rebound from 2020 which contracted 19.7 per cent Y-o-Y decline as the sector was adversely hit by the Movement Control Order 1.0 (MCO1.0) particularly in the second quarter of 2020.

MIDF Research maintained its “positive” call on the sector and named Gamuda Bhd as the major early beneficiary from the potential MRT3 project.

This premised on MMC-Gamuda consortium being the frontrunner to secure the project as turnkey contractor or project delivery partner (PDP).

MIDF Research said Gamuda would likely be the contractor for the tunnel works, estimated to be worth almost half of the contract value, given its experience in both MRT1 and MRT2.

Other beneficiaries previously involved in MRT2 could be the potential winners for MRT3’s job awards as well.

They are IJM Corporation Bhd, Sunway Construction Group Bhd, WCT Holdings Bhd, Gabungan AQRS Bhd, Malaysian Resources Corporation Bhd and Malayan Cement Bhd.

Public Investment Bank Bhd (PublicInvest) said MRT3 would have an immediate impact on the economy as it was a shovel-ready project, assuming the government proceeds with the project with MMC-Gamuda as turnkey contractors, similar to MRT2.

“As this project is expected to kick off in second half of this year, we believe the government will proceed with either a PDP or turnkey contract model.

“Reverting to the PDP model is unlikely, in our view, given constraints on the government’s funding as PDP fees will result in additional costs.

“Though it is reported that the PDP model is being explored to minimise execution risks, we think this could potentially be offset by the experience of contractors with good track records previously involved in the MRT1 and MRT2,” it said.

PublicInvest maintained its “neutral” call on the sector.

Bursa Malaysia’s construction index closed 1.16 points lower or 0.62 per cent at 185.26 points yesterday.

The index’s most active counters were Widad Group Bhd, which shed 2.5 sen or 4.81 per cent at 49.5 sen, Ekovest Bhd, which eased one sen or 1.98 per cent lower at 49.5 sen and Zelan Bhd, which closed 0.05 sen or four per cent lower at 12 sen.

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