Construction contract flows could improve in 2022

KUALA LUMPUR: Following a muted start to the year, contract flows in the construction sector could see gradual improvement as the country enters the endemic stage of Covid-19, said Hong Leong Investment Bank (HLIB) research.

The research firm said in a note that ongoing rollouts of existing projects like the East Coast Rail Link, Pan Borneo Highway Sabah and Sarawak, Johor-Singapore Rapid Transit System and Central Spine Road could help support job flows moving forward in 2022.

These projects would help to ramp up the rollout of jobs after a slow start to the year where only RM2.2bil of domestic awards were doled out to listed contractors.

According to HLIB, the total contract value was 65% lower quarter-on-quarter and 54% less year-on-year.

“Awards were largely made up of private sector (building/township) and solar-related jobs representing 66% and 14% of awards during the quarter under review.

“The remainder were from government-related entities with the notable award being city mosque job to AZRB (9%),” said HLIB.

It noted the absence of public sector-related contracts such as water, roads, airports and public buildings during the quarter under review.

Meanwhile, HLIB added that the Rasau Package 1 project was initially scheduled for 1Q22 but has seen delays pending the grant approval.

“We also look forward to the rollout of Sarawak Metro which costs RM6bn in 2H22.

“Should things proceed smoothly, early stage awards for the MRT3 could come in late 2022,” it added.

In terms of downside risk, HLIB said there is growing concern over private sector flows due to soaring materials prices and its impact on various project rollouts.

It noted that steel bar and cement prices have risen sharply higher by about 20% and 40% respectively in 1Q22 due to inflationary pressures.

“We continue to expect sector coverage earnings to recover this year but downside risks versus our expectation is growing should recent steep costs escalation persists,” it added.

HLIB retained its “neutral” sector call with its preferred stocks being SunCon (TP: RM1.84) and Kimlun (TP: 99 sen) in the mid-cap and small-cap spaces respectively.