CONSTRUCTION

Sector report 12MP tabling next month hangs in the balance

9 Feb 2021 UNDERWEIGHT
Joshua Ng (Maintained)
ng-chin-yuing@ambankgroup.com
03-2036 2293 Rationale for report: Sector update
Investment Highlights

 The uncertainty surrounding the tabling of the 12th Malaysia Plan (12MP) scheduled for March 2021 (prior to the declaration
of a state of emergency nationwide from 12 Jan to 1 Aug 2021) reinforces our UNDERWEIGHT stance on the local
construction sector over the next 6–12 month.

 It has been close to a month since the suspension of parliament following the declaration of a state of emergency
nationwide. However, it is still unclear if the tabling of the 12MP (2021–2025) would be postponed to another date, or the
government would roll out the 5-year development plan for the nation in the absence of the scrutiny by parliament (in which
case, the legitimacy of the plan could be subject to challenges in future).

 Flashback to the year 2015, its predecessor the 11th Malaysia Plan (11MP) (2016–2020) was tabled by the then Prime
Minister Datuk Seri Najib Razak on 21 May 2015 and debated by the members of parliament for five days from 25 May
2015. Thereafter, replies from ministries were heard for three days before the plan was finally approved by parliament
slightly past midnight on 16 June 2015. It took close to a month to compete the entire process.

 The uncertainty surrounding the 12MP aside, we maintain our view that the government will have very limited room for
fiscal manoeuvre given the elevated national debt, weighed down further by the economic impact of the pandemic
(including reduced tax and petroleum revenues), as well as the massive relief spending to cushion the economic impact
of the pandemic. All these have culminated in Fitch Ratings’ Dec 2020 downgrade of Malaysia’s long-term foreign-currency
issuer default rating to ‘BBB+’ from ‘A-‘, on the heels of S&P Global Ratings’ June 2020 downgrade of Malaysia’s outlook
to negative from stable. We believe the recent termination of the KL–Singapore high-speed rail project should serve as a
wake-up call to the market.

 Operationally, construction players are subject to higher operating cost and lower efficiency (due to restrictions on working
hours and worker density on the site, and the additional expenses incurred in upgrading the dormitory for foreign workers
in compliance with the Worker’ Minimum Standards of Housing and Amenities Act 1990, also known as Act 446) and
higher operating risk (due to the potential stop-work order or enhanced movement control order or EMCO on the dormitory
in the event of Covid-19 infections, shortage of foreign workers as borders remain largely closed and the policy to reduce
the country’s reliance on foreign workers).

 Amidst the uncertainty in the rollout of public infrastructure projects locally, a number of players have ventured or returned
to overseas markets. For instance, Sunway Construction in 2020 bagged two highway projects worth more than RM800mil
in India on a hybrid annuity model, while Econpile secured a US$85.7mil (RM347.6mil) piling and substructure work
subcontract for an “integrated entertainment complex” in Phnom Penh, Cambodia. Meanwhile, Gamuda has been
shortlisted for two tunnelling packages of the A$20bil (RM60bil) Sydney Metro West and the A$2.6bil (RM7.8bil) Sydney
M6 motorway in Australia.

 We may upgrade our UNDERWEIGHT call on the sector to NEUTRAL/OVERWEIGHT if the government decides to forge
ahead with the implementation of key public infrastructure projects, despite the weak fiscal position.
 We do not have any top pick for the sector.
Construction Sector 9 Feb 2021

EXHIBIT 1: VALUATION MATRIX

Recomm. Price FV Upside Mkt Cap FYE EPS (sen) EPS growth (%) P/E (x) P/B* ROE* NDPS* Div Yield*
(RM) (RM) (%) (RMmil) FY20F FY21F FY20F FY21F FY20F FY21F (x) (%) (sen) (%)
Gamuda HOLD 3.45 3.81 10.3 8,541.7 Jul 20.2 22.0 -27.1 8.9 17.1 15.7 1.0 6.5 9.0 2.6
IJM Corp# UNDERWEIGHT 1.52 1.09 -28.3 5,511.1 Mar 4.3 9.5 -59.8 120.9 35.3 16.0 0.6 3.5 6.0 3.9
SunCon UNDERWEIGHT 1.51 1.55 2.6 1,952.3 Dec 5.3 12.9 -47.0 143.4 28.5 11.7 2.6 23.9 7.0 4.6
Econpile UNDERWEIGHT 0.45 0.18 -59.6 595.2 Jun 0.6 2.2 -68.4 266.7 74.2 20.2 1.4 7.0 0.5 1.1
HSL HOLD 0.95 0.90 -4.8 550.7 Dec 6.3 11.3 -33.7 79.4 15.0 8.4 0.6 7.5 1.4 1.5
Kimlun HOLD 0.76 0.79 4.6 242.1 Dec 3.8 9.9 -76.3 160.5 19.9 7.6 0.3 4.8 3.3 4.4
Weighted Average -42.0 72.7 26.1 15.2 1.0
*FY21 #FY20F and FY21F refer to FY21F and FY22F
Source: AmInvestment Bank

EXHIBIT 2: MEGA PROJECTS

Project Value Status
(RM bil) On-going Pending
Penang Transport Master Plan 46.0 √
East Coast Rail Link 44.0 √
MRT2 30.5 √
MRT3 21.0 √
LRT3 16.6 √
Pan Borneo Highway, Sarawak 16.5 √
Pan Borneo Highway, Sabah 12.8 √
Coastal Road, Second Trunk Road and 11 mega bridges in Sarawak 11.0 √
Central Spine Road 10.7 √
Sarawak-Sabah Link Road 5.2 √
Klang Valley Double Track (Phase 2) 4.5 √
Rasau water treatment plant 4.5 √
Johor Bahru-Singapore Rapid Transit System (JB-Singapore RTS) 3.2 √
Source: AmInvestment Bank, various news reports

AmInvestment Bank Bhd 2

Construction Sector 9 Feb 2021

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