KUALA LUMPUR: Kerjaya Prospek Group and Gabungan AQRS are among the contractors least impacted by the lockdown, operating at 60% of productivity with most of its construction sites resuming work, according to UOB Kay Hian Malaysi Research.
The research house said on Friday the January-March earnings of construction companies were generally below expectations.
The earnings disappointment was mainly attributed to slower-than-expected construction progress billings due to the Movement Control Order (MCO) 2.0 and was exacerbated by the lower margins due to additional Covid-19-related costs, for example sanitisation of the construction sites.
In tandem with this, the KL Construction Index declined 6% year-to-date, underperforming the FBM KLCI Index (-2.6%).
The lockdown came into effect on June 1 and will stretch up June 14 due to the surge in Covid-19 infections. Currently, the MCO 3.0 is also in effect.
“If the lockdown continues, or lasts more than a month, construction revenue likely will be lower than 1Q21, which was during the MCO 2.0 period, ” the research house said.
The impact of the total lockdown varies across the sector due to the exceptions provided by the government.
Critical construction, maintenance and repair works, construction of key public infrastructure and construction sites that provide centralised labour quarters are allowed to resume work but with 60% of the workforce.
“Maintain market weight. With the national vaccination programme speeding up and government expecting the country to achieve herd immunity by 1Q22, we believe investors should look beyond the current lockdown.
“Should there be no major hiccup in the programme, we could expect an acceleration of construction billings recognition and a pick-up in property sales as early as 4Q21/1Q22. Besides, the MRT3 project rollout could help to replenish the sector’s orderbook and improve sentiment, ” it said.
UOB Kay Hian Research said Kerjaya Prospek Group remains its preferred pick within the sector. It views the stock as the safer bet under the current environment of uncertainties, given its lower reliance on government projects and its ability to clinch private sector jobs.
The company has a solid net cash position of RM169mil (as of end-March 2021) to weather the pandemic.
“Our sum-of-parts based target price of RM1.40 implies a 2021F PE of 14.3 times, ” it added.
It raised concerns the mega projects rollout could be at risk of being pushed forward again, given the recent resurgence of Covid-19 cases and the impact of the total lockdown on the government’s finances.
UOB Kay Hian Research expects the latest measures to shave 1% of its 2021 GDP forecast to 4% (from 5%).
This is assuming 55-65% of the economy continues to operate under the first phase regulations and the economy gradually reopens in the second phase before almost all sectors are allowed to operate by 3Q21.