KUALA LUMPUR: An impending general election – yet undated – may lead to delays in contract awards for the construction industry, particularly for Mass Rapid Transit 3 (MRT3), RHB Research said.
Hence, the bank-backed research firm expects job flow in 2022 to be more tepid than in 2021.
RHB Research said the total value of construction projects awarded (domestic and foreign) in the nine-month of 2022 totalled RM86.8 billion – down 11 per cent year-on-year (YoY) from RM97.5 billion in nine-month 2021, according to the Construction Industry Development Board (CIDB).
"As such, the sector's job flow year-to-date (YTD) has yet to pick up," it said in a note today.
RHB Research said the 2023 budgeted development expenditure (DE) of RM95 billion (2022: RM71.8 billion) included the RM14 billion earmarked for the redemption of 1Malaysia Development bonds maturing in March 2023.
Moreover, the proportion of allocation to the transportation sector continued to dip, from 25.4 per cent before the pandemic in 2019 to 17.3 per cent in 2023 (2022: 19.7 per cent).
"Much of this revolves around the continuation of existing projects. But, politics aside, Budget 2023 was not enticing enough," it added.
RHB Research said that the sector remains under pressure as building material prices continue to remain elevated.
This is despite steel bar prices having seen a fourth consecutive month of YoY decline in September.
"For instance, the price of bulk cement was 33 per cent higher YoY in September, marking the 11th straight month of double-digit YoY increases.
"Therefore, headwinds regarding building material prices remain, posing risks of continued margin compression for contractors," it added.
RHB Research has maintained its 'Neutral' call on the sector.
"We like names from the small and mid-cap construction spaces, like Kerjaya Prospek Group Bhd and Sunway Construction Group Bhd.
"We believe they have supportive catalysts, backed by stable orderbook replenishment rates (with exposure to non-government-related projects) and robust balance sheets," it said.