KUALA LUMPUR: The forthcoming driver of the construction sector this year is the increased involvement of Malaysian-based contractors in Indonesia's new capital city, Nusantara, according to RHB Research.
IJM Corp Bhd is currently interested in the RM1 billion Nusantara state civil servant housing project, while the Nusantara Capital Authority is also evaluating several other Malaysian companies that submitted letters of intent in 2022.
"Another catalyst is a quicker-than-expected rollout for the proposed three lines of the Johor Bahru Light Rail Transit (LRT).
"The Johor government was reported to be set to submit the project's proposal to the federal government in late November 2023," it said in a note.
Moving forward, RHB Research noted that key events in the first half of 2024 (1H24) may include awards for flood mitigation projects, the Penang LRT, Pan Borneo Highway Sabah Phase 1B, and the reinstatement of the five LRT3 stations.
As for the Mass Rapid Transit 3 (MRT3), the firm expressed satisfaction that the government is going ahead with the land acquisition process for the project.
"According to MRT Corp, the notification of identified land is expected to start in 2Q24 with the finalisation of land to be acquired taking place in the third quarter of 2024 (3Q24).
"Therefore, we assume that MRT3 awards could take place in 4Q24," it added.
Environmentally, RHB Research said there have been a slew of contractors like Sunway Construction Group Bhd and HSS Engineers Bhd participating in renewable energy-related initiatives such as the Corporate Green Power Programme.
Separately, it said that construction giants like Gamuda Bhd have announced their participation in jointly developing the 187.5 megawatt (MW) Upper Padas Hydroelectric Dam with Sabah Energy Corporation and Kerjaya Kagum Hitech joint venture.
The firm said, looking ahead, key downside risks to our call include longer-than-expected delays in job rollouts and larger-than-expected cost cuts for MRT3.
RHB Research has maintained an "overweight" call on the construction sector, with the top picks being Gamuda, Sunway Construction, and Kerjaya Prospek Group Bhd.
According to the Construction Industry Development Board (CIDB), the total value of projects awarded to contractors in 2023 was RM127.4 billion, which was 22 per cent less than the RM163.2 billion observed in 2022 year over year (YoY).
Nonetheless, RHB Research viewed this as a temporary blip: contract rollouts are expected to be backed by the government's RM90 billion development expenditure (DE) allocated for 2024, with 21 per cent of DE focusing on the transport subsector versus 18 per cent in 2023.
Government projects saw a 33 per cent YoY drop in value awarded during 2023, reaching RM29 billion compared to RM43.9 billion in 2022.
Among the types of projects, infrastructure recorded the largest annual drop in terms of project value, at 47 per cent YoY (amid the dearth of large-scale public jobs in 2023), followed by residential at a 37 per cent YoY drop.
However, non-residential projects bucked the trend, rising four per cent YoY to reach RM76.8 billion.