THE double whammy of full movement control order (FMCO) and enhanced movement control order (EMCO) will take a toll on the construction sector by weighing on job award outlook in 2H 2021F as well as potential earnings risks posed to contractor’s existing order books.
This is basically what CGS-CIMB Research envisages from the spate of a two-week stop work order and 60% limit to site workforce capacity in addition to constraints on building material supply chain stemming from the pandemic-stricken economy.
“(Nevertheless) we expect possible bright spots to come from the award of small/medium scale infrastructure (civil works) under Budget 2021 and selective contracts in Sabah/Sarawak (East Malaysia),” projected analyst Sharizan Rosely in a construction sector update.
“All-in-all, we anticipate sector contract awards momentum to remain in negative territory; we estimate a 5% year-on-year (yoy) decline in 2021F vs. -24% in 2020.”
More broadly, CGS-CIMB Research expects the value of awarded civil works/infrastructure-type contracts (key component reflecting the rollout of rail projects) to continue its downtrend in 2021 (from -27% yoy in 2020 due to COVID-19 delays).
“The RM10 bil total value of infrastructure contracts awarded in 1H 2021 is unsustainable in 2H 2021F in our view given the disruptions from the nationwide FMCO and the ongoing EMCO in Selangor and Federal Territory,” the research house pointed out.
“A potential delay in the re-launch of RM22 bil to RM30 bil MRT 3 (Mass Rapid Transit Line 3) suggests that contract awards may only occur in 1H 2022F at the earliest (pending railway scheme approval and funding structure).’
As a whole, CGS-CIMB Research stays “neutral” on the construction sector in view of the FMCO/EMCO risks.
“We believe that sector sentiment will remain cautious in view of current political uncertainties and earnings risks from the FMCO/EMCO,” opined the research house.
“Foreseeable upside risk is an election-driven contract roll-out post the lifting of political emergency while downside risks include prolonged EMCO and further delays in job roll-out.”
For now, CGS-CIMB Research continues to prefer Gamuda Bhd as a big cap laggard play and HSS Engineers Bhd on rising demand for engineering consultancy contracts. – July 8, 2021
