KUALA LUMPUR, Sept 28 — Kenanga Research has downgraded its construction valuations ascribed towards key infrastructure players like Gamuda Bhd and IJM Corp Bhd to ‘neutral’ from ‘overweight’, following the tabling of the 12th Malaysia Plan (12MP) by Prime Minister Datuk Seri Ismail Sabri Yaakob yesterday.
In a note today, the research house said it chose to dial down its valuations for key infrastructure contractors under its coverage in light of the weaker prospects for the local infrastructure space, coupled with the government’s less-than-ideal fiscal position.
However, despite the lowered valuations, at the current share price, Gamuda and IJM counters still command an ‘outperform’ call, it said.
Kenanga opined that there is a higher probability for the government to endorse the monetization of highways by Gamuda or IJM to re-channel the proceeds to new projects via Public-Private Partnerships (PPP) or Private Finance Initiatives (PFI) in light of the government’s weaker fiscal position.
“We find the high development expenditure (DE) allocation of RM400 billion a stretch, given that the government is also focusing on fiscal consolidation.
“All in, we believe the governments’ weaker fiscal position post-pandemic would mean slower roll-out of projects, smaller quantum or spaced-out contracts, and a higher reliance of PFI funding from contractors,” it said.
Kenanga said the 12MP is underwhelming for most contractors under its coverage, as prospects for mega infrastructure projects for the upcoming years would be minimal with the focus being on delivering existing projects.
It noted that the government will be prioritizing less developed states and have earmarked 50 percent of the DE for six states, namely Kedah, Kelantan, Perlis, Sabah, Sarawak, and Terengganu.
Key projects to be implemented include the construction of schools, hospitals, roads, and industrial areas.
Meanwhile, CGS-CIMB has maintained its ‘neutral’ call on the construction sector as the research house is positive on the DE allocation which is 61 percent higher than 11MP’s RM249 billion.
“Overall, we are positive on the 12MP’s allocation, but the lack of details on the prospects of new mega project rollouts in 2022 is unlikely to excite the sector,” it said.