Malaysian construction headed for a rebound: Report

MALAYSIA'S construction sector could be headed for an upturn, even for companies without public works contracts, a recent report has suggested.

Meanwhile, a planned increase in ready mixed concrete prices should push up contractors' costs by no more than 1.5 per cent, while companies have likely taken raw material price volatility into account, wrote UOB Kay Hian's Farhan Ridzwan and Abdul Hadi Abdul Manaf.

Contractors are expected to pass through the higher prices into future contracts and do not risk significant margin erosion, the analysts said.

"Growth visibility remains clear for companies with little to no reliance on government projects and can replenish their order books," they added, citing Kerjaya Prospek Group, which has tendered for projects in the private sector.

The report cited as potential stimuli the Malaysian government's return to infrastructure mega-projects that had been put on ice, such as the East Coast Rail Link (ECRL), as well as domestic initiatives like the Pan Borneo Highway Sabah (PBHS).

"Should the ECRL or PBHS commence construction works and begin to award fresh contracts, this would spark a mild re-rating for the sector, particularly for turnkey contractors and sub-contractors," said the analysts.

Consultants, contractors and pipe manufacturers could also get a boost from water industry reforms such as national pipe replacement and the Sarawak Water Supply Grid Programme.

Still, Mr Farhan and Mr Abdul Hadi noted that the uplift will not be even, as "selected mid-cap construction companies, particularly bumi-controlled companies, will be key beneficiaries".

Contractors with high overheads and high gearing may also not be well-placed, said the analysts, who warned that margins may thin, on the back of competitive bidding.