KUALA LUMPUR: The local construction sector has been awarded a total of RM2.9 billion contracts in the first quarter of the year.
This was a 55 per cent growth quarter-on-quarter but a 40 per cent contraction year-on-year, according to Hong Leong Investment Bank Bhd (HLIB).
The firm said infrastructure contracts remained weak, declining 10 per cent q-o-q and 63 per cent y-o-y during the first three months.
The segment was outpaced by building jobs, which grew 94 per cent q-o-q but contracted 27 per cent y-o-y.
“Broadly speaking, project rollouts may have been dragged by the seismic shifts in Malaysia’s political landscape and nationwide implementation of movement control order could spark further delays to the original timeline,” HLIB said in a report today.
HLIB maintained a "neutral" call on the sector, as its prospects looked fairly muted due to earnings risks from weaker progress billings and cash flow pressure.
The firm said awards for big projects expected in the quarter were package 28 to 30 of Pan Borneo Highway Sabah, package B of The East Coast Rail Link (ECRL) as well as signing of the project delivery partner agreement for Penang Transport Master Plan (PTMP), which ultimately did not meet market expectations.
“Nevertheless, we gather there is some progress as issuance of a sukuk facility to finance the ECRL is in the works (in addition to the China EXIM loan).
“Limited financing options (initially exploring contractor financing and loan facility options) for the reclamation may diminish even further,” it said.
HLIB said diversified contractors with larger balance sheet capacity were hit on multiple angles from Covid-19 (balance sheet to deteriorate), effectively eliminating the contractor financing option.
“Without meaningful progress in firming up a funding structure for reclamation works, other parts of the PTMP may not move,” it added.
The firm continues to like Sunway Construction Bhd due to a healthy balance sheet, consistent execution and strong support from its parent company, and Taliworks Bhd for providing yields of eight per cent for financial year 2020-2021.