Malaysia: Four construction sector drivers to benefit under Budget 2018

KUALA LUMPUR: CIMB Research expects that the priority projects under Budget 2018 will benefit four major sector drivers, which are public transport, roads, public housing and water infrastructure.

The research house said on Monday that 73% of the RM210bil value of projects were focused on rail, including the High Speed Rail (HSR) and the East Coast Rail Link (ECRL).

“We observe that rail, affordable housing, roads/highways and water infra are major segments that would benefit from the government’s high-impact projects initiative and spending next year,” it said in a note.

It noted that the RM210bil compiled value of projects under Budget 2018 comprises rail and public transport (73%), rural infrastructure, private-finance initiative (PFI) and schools (19%), and the rest are roads, public housing, and water infrastructure.

“The good news is that the MRT 3 (Circle Line) project is targeted to be completed in 2025, two years earlier than the original target of 2027. 

“Our cost estimate based on an assumed 40km alignment and MRT 2-benchmarked RM1bil cost per km puts a RM40bil estimated price tag for the project, which could be up for Cabinet approval by mid-2018, going by our previous industry checks,” it added.

The research house maintained its Overweight call on the construction sector, citing delays and funding issues as key downside risks.

Overall, it said, Budget 2018 puts the priority on outstanding major rail contracts, mainly the RM55bil ECRL. 

It added that the progress of other major rail jobs should catalyse sector newsflow ahead of the 14th General Elections (GE). 

“Gamuda remains our top big-cap rail pick, while IJM Corp could emerge as one of the early rail winners. 

“Protasco could benefit from public housing contracts, while the surge in water infra allocation could be positive for Salcon,” it added.