Investors are advised to reduce their exposure to Malaysia’s construction stocks, said CIMB IB Research, which maintained its underweight rating to the sector, reported The Edge.
On its underweight rating, this is based on the forecasted decline in construction projects next year. Nonetheless, revival of the cancelled or deferred major rail contracts would be positive for the industry.
On the government’s mid-term review of the 11th Malaysia Plan, it expects minimal impact on the overall construction industry, and there’s unlikely to be positive news regarding new contracts.
“The next event to look out for is the Budget 2019 announcement on 2 November,” it said.
According to CIMB Research analysts Kamarul Anwar and Sharizan Rosely, a slight positive arising from the mid-term review is the federal government’s strengthening of the public-private partnership (PPP) model for contract procurement.
“We understand that this could take the form of pure cash contracts, or land swap deals.”
“This is most relevant to selected small/medium-sized contractors, but we believe the tender environment will be very competitive (as there are many idle capacity construction firms).”
Notably, the Eleventh Malaysia Plan outlines the goals of the government for 2016 to 2020. It was originally tabled by former Prime Minister Datuk Seri Najib Tun Razak on 21 May 2015.
Its mains objectives are to strengthen economic growth and boost the earning of Malaysians.
Among the key highlights of the mid-term review is that Malaysia’s economy for the remaining period (2018 to 2020) is only expected to rise by 4.5 percent to 5.5 percent per year versus 5.0 percent and 6.0 percent in the prior years.
Total expenditure for development projects from 2016 to 2020 was also reduced from RM260 billion to RM220 billion to improve the government’s financial status.
Public investment is also expected to slide by 0.8 percent per annum due to changes or deferment of large-scale infrastructure projects such as the Singapore-Kuala Lumpur High Speed Rail (HSR) and the East Coast Rail Link (ECRL).
Furthermore, growth in Malaysia’s construction sector is expected to soften to 4.3 percent on average per year because of sluggish gains in the residential and non-residential segments.
This article was edited by the editorial team of PropertyGuru. To contact them about this or other stories email editorialteam@propertyguru.com.my
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