KUALA LUMPUR: CGS-CIMB Securities Sdn Bhd is optimistic about the construction sector as the risk-reward looks attractive on the back of better visibility of contract flows post-15th General Election and better political stability after the upcoming state elections.
In a note today, the securities firm also said that stronger balance sheets, more apparent with the larger-cap stocks, enable a strong appetite for private finance initiative projects.
“In our view, the Mass Rapid Transit (MRT) 3 and the revival of the High-Speed Rail are important projects,” it said.
Hence, CGS-CIMB has upgraded the construction sector to ‘Overweight’.
However, key downside risks to the sector call are political instability and escalating raw material costs.
The company said steel prices have abated from the peak of RM3,470 per metric tonne (/mt) seen in the first quarter (1Q 2022) to 2Q 2022 and are currently trading at RM3,000/mt.
The higher steel prices had a negative impact on smaller contractors, which lack economies of scale, and also contractors which had a higher percentage of the order book to building jobs.
“With steel prices appearing to be more stable now, we believe that this would give contractors better visibility in terms of cost when bidding for new jobs,” it said.
Meanwhile, cement prices rose to RM410/mt in early-2023 from RM370/mt. After rebates, the average selling price is about RM370/mt.
“Given the subdued property market and key mega projects such as MRT 3 have not taken off yet, we expect cement prices to be stable for now,” it said.
CGS-CIMB said its preferred stocks are still those with robust balance sheets such as YTL Corp with an “Add” call and target price (TP) of RM1.00, MCement (TP: RM3.97), Sunway (TP: RM2.21) and Muhibbah (TP: RM0.90). – BERNAMA
