KUALA LUMPUR: Investor sentiment towards Malaysia's policy direction is thawing, however frustration remains on implementation delays.
In a note issued yesterday CGS-CIMB Securities said several meetings with instutional investors showed that there was a general acceptance of its view that the government's messaging of its medium-term plans and strategies was now a lot clearer.
It said several investors were keen to understand the potential areas where subsidies could be reduced and if major reforms were needed to achieve the government's 3.5 per cent deficit target by 2025. CGS-CIMB indicated that there are already savings coming from normalising global commodity prices while targeted subsidies in areas, such as electricity, diesel and RON 95 (more towards 2H24), were sufficient to consolidate the fiscal balance.
It also also highlighted that the goods and service tax (GST) could be introduced gradually in a phased manner, as the added revenue lift was not needed to achieve the 3.5 per cent target.
"However, actual project implementation and critical cabinet/parliament approvals were seen as slow. We sensed a degree of frustration that there was not enough urgency to kick start catalytic projects, essential to achieving the Prime Minister's Economi Madani agenda," the research firm said in its note.
Two key areas that need seriousness in execution are approval of an energy exchange and the rollout of the pipeline of several development projects.
While encouraged by the granularity provided in 2024 Budget, such as, for example, in the planned rollout of its aggressive development expenditure budget of RM90 billion (plus a couple of high profile projects that are treated as off-balance sheet), CGS CIMB believes that it is imperative that several project awards take place between November 2023 and March 2024, to generate greater confidence that the government is serious about taking the economy to the next level.
"We will be closely monitoring, among other things, the potential awards for Pan Borneo Sabah Phase 1B (RM15.7billion), Sabah Sarawak Link Road (RM7.4 billion), MRT 3 (RM40-45 billion), flood mitigation projects (RM11.8 billion) and Bayan Lepas LRT (RM10 billion)," CGS-CIMB said.
CGS-CIMB recommends a double overweight on the construction sector, in demonstrating its greater confidence in policy continuity.
Its key picks include Gamuda Bhd, YTL Corporation Bhd, Sunway Construction Bhd, Sunway Bhd, IJM Corporation Bhd, Malayan Cement Bhd, Muhibbah Engineering Bhd and HSS Engineers Bhd.
"Although the KL Construction index is up 21 per cent year-to-date (partly driven by the property exposures of the larger listed construction companies, we suspect), it is trading at 45 per cent below levels seen in mid-2017, prior to the fall of the Barisan Nasional government. There was understandably some pushback to our thesis and we got the sense that few investors, if any, have taken such an aggressive positioning on construction just yet," it said