Construction sector faces bright outlook this year

10 January 2012

As new projects are being awarded, stronger earnings and heightened news flow will greet the construction sector this year.

"With legacy jobs depleted and margins normalising, we see construction constituting 29 to 37 percent of financial year (FY13) forecasted profit versus 13 to 26 percent in 2011 for our core universe, making it a more leveraged proxy to the sector," said Chong Tjen San, an analyst from HwangDBS Vickers Research Sdn Bhd (HwangDBS Research).

"This is more apparent in larger caps like IJM Corporation Bhd (IJM) and Gamuda Bhd (Gamuda), which are more diversified."

"Malaysian Resources Corporation (MRCB), Sunway Bhd (Sunway) and WCT Bhd (WCT) are also well diversified. Of these, WCT will be a purer construction bet," noted Chong.

The Mass Rapid Transit (MRT), RM8 billion Gemas to Johor Bahru double tracking, RM30 billion highway jobs, RM12 billion Kuala Lumpur-Singapore high speed rail and two other MRT lines will either be awarded or receive official approvals in 2012.

On the property construction segment, Chong said, "Generally, the property segment within the context of our construction stocks will slow down in 2012. Although sales so far have been encouraging, we do not think this is sustainable for the subsequent quarters."

"The mitigating factors are they are largely township developers (such as IJM Land and Gamuda) and hence have products within each pricing segment and also geographically," he said.

Source