KUALA LUMPUR: The construction sector got off to a solid start this year, with domestic contract wins totaling RM7.06 billion in the first quarter of 2023 (1QFY23), said Hong Leong Investment Bank Bhd (HLIB).
According to a report issued today by the bank, this is an increase of 18 per cent quarter on quarter (QoQ) and 215 per cent year on year (YoY).
It said the increase in contract awards in 1QFY23 was mostly predicted as a result of the delayed award decision in 4QFY22 pending the conclusion of the 15th general election (GE15), more predictable material pricing (less volatile), and dissipating labour shortage.
As a result, HLIB said in 1QFY23 it observed that 55 per cent of contracts awarded were for private sector building/housing projects, 24 per cent for multinational corporations (MNC), and the remaining for public infrastructure works (RM1.3 billion).
"Though Budget 2023 had to be re-tabled, leading to concerns on implementation risks in 2023, we draw comfort from the speedy contract award of Sanglang Phase 1 development worth RM200 million to Citaglobal Bhd (included in Budget).
"1QFY23 turned out to be a massive quarter for Sunway Construction Bhd (SunCon) bagging RM2.3 billion worth of contracts including a data centre job awarded on Dec 31, 2022," it said.
HLIB noted that numerous major projects outlined in the 2023 Budget, including different highway widening works in Johor, airport expansion jobs in Penang and Subang worth over RM2 billion, and hospitals (the most important of which is in Sarawak, worth RM1 billion), will be completed in 2023.
Furthermore, the bank anticipates more possibilities in flood mitigation projects worth RM13 billion to be granted beginning June this year, as well as the Klang Valley Mass Rapid Transit Line 3 (MRT3) project somewhere in the second half of this year (2H23).
HLIB has maintained a 'neutral' view on the construction sector in the face of rising essential material prices, a potential impact in risk sentiment from approaching state elections, and a lack of project pipeline beyond MRT3.
Meanwhile, it said that the sector's cumulative calendar year 2023 (CY23) profit predictions show a 3.9 per cent increase.
It added that mega project revivals would be major catalysts for the sector, while risks include MRT3 cancellation, sustained elevated material prices, manpower shortages, and political instability.