2024: Construction Sector To Receive More Government Contracts


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HLIB Research, an investment bank, is optimistic about the construction industry in 2024 due to the anticipated influx of public project contracts, which may result in an exceedingly high number of contract awards compared to the current level.

Recently, the research firm elevated the construction sector to “overweight” status, recommending Sunway Construction Bhd and Gamuda Bhd as its top candidates.

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HLIB reports that, with the exception of the Mass Rapid Transit 3 project, contract levels at both organisations may result in a more sustained orderbook growth phase.

The government plans to implement several high-profile initiatives in accordance with Budget 2024. These include the reinstatement of LRT3 (RM4.7bil), flood mitigation packages valued at RM11.8bil, Penang LRT (RM10bil), and Sabah-Sarawak Link Road (RM7.4bil).

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HLIB noted that these projects are included in the RM90bil development expenditure budgeted for 2024, representing a 7.9% year-on-year increase after the 1MDB bond is eliminated. “We also anticipate additional developments on civil packages for the MRT3 (tender validity extended to March 24), and there is a possibility of increased news flow from other prospective projects such as the KL-SG HSR and Johor LRT (each costing RM20bil).”

“Tangible developments for the Special Economic Zone and Special Financial Zone in Johor could also generate more construction opportunities, in particular the former given its greenfield status.”

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Additionally, HLIB is of the opinion that the recent appointment of Minister of Finance II should initiate the process of debottlenecking the pipeline. Furthermore, long-term savings are reallocated towards infrastructure projects will allow continuous rationalisation of subsidies will gradually increase fiscal space. 

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“We see 2024 as an opportune time to start building. Furthermore, factoring in implementation time lags, allowing a full scale of economic multiplier effects to be felt before the next GE,” the report stated.

In the meantime, HLIB anticipates an increase in water space capex due to impending tariff rises the following year.

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“Recall that under the water sector transformation, the long term pipeline of PAAB’s infra capex depends on the ability of state water operators to service incremental lease payments, ultimately linking water tariffs to capex.”The potentially RM4-5bil Sg Perak Raw Water Transfer Scheme (SPRWTS) is a significant undertaking in this field.

HLIB anticipates greater clarity regarding the development schedule in 2024.

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The project, in its prior iteration, involved the development of a 15-kilometer water conduit that capitalised on Gamuda’s advantageous attributes.

Regarding cost pressures, HLIB asserts that, with the exception of cement, where average selling prices have remained unchanged thus far in 2023, they have largely abated.

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“The more stable and predictable costs trends have in our view, aided with private jobs rollout and signs are a majority of input costs could stay stable going forward.””Although the forthcoming fuel subsidy rationalisation may cause a spillover increase in expenses, we consider this to be controllable due to its gradual implementation,” the statement continued.

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