Construction
Construction Sector - Full steam ahead
Fri, 05-Jan-2024 10:17 am
by Kenneth • Apex Research

Review

The construction sector remained upbeat of growth (+9.6% yoy) in 3Q23 with value completed totalling RM33.4bn, driven by civil engineering (+17.1% yoy) from the construction of road and railways, special trades activities (+16.2% yoy) and residential buildings (+7.9% yoy) that got the better of -0.7% yoy decline in the non-residential buildings. Meanwhile, the private sector makes up to 58.5% or RM19.6bn of the market share, while the remainder (41.5% or RM13.9bn) was contributed from the public sector.

Outlook

We expect the construction sector to shift into higher gear, moving into 2024 as we political uncertainties took a back seat following the favourable outcome from State elections. Driving the construction sector would be acceleration of mega infrastructure projects in the pipeline as well as the upward revision of allocation for development expenditure under the 12th Malaysia Plan mid-term review in bid to spur the Malaysia economic growth. Among the mega infrastructure projects to keep an eye for include East Coast Highway 3, flood-mitigation projects, the West Coast Expressway, the East Coast Rail Link, the Central Spine Road, Mass Rapid Transit 3 (MRT3) which is expected to take off in 1Q24, Bayan Lepas Light Rapid Transit (BLLRT) in Penang, Pan Borneo Highway (Sabah section), and Johor-Singapore Rapid Transit System.

Valuation & Recommendation

We gather that the construction sector is trading at forward PERs of 12.7x and 11.6x for 2024F and 2025F is below its historical two-year average of 15.0x implies potential upside over the foreseeable future. Under our coverage universe, we favour AME Elite Consortium Bhd (BUY; FV: RM1.80) for its established presence in the industrial building development that will be leveraging onto the construction of new manufacturing facilities and rising foreign direct investment into the country. Meanwhile, the group is also touted as one of the indirect beneficiaries from China Plus One strategy.

Recommendation: Overweight
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