A year ago, when trying to engage on the construction sector, the usual dismissive from clients was “construction is so 90s, la!”.
As underscored by the lack of new major projects in Budget 2023, there has been a steady decline in large, high-margin infrastructure projects. Oversupply in the broad property market and rise of ESG (generally punitive re construction’s direct environmental and social impacts) have also contributed to investor apathy – foreign shareholding for Gamuda and IJM averaged 40% in 2013, vs. just 12-13% as at Aug 2022.
However, construction now looks to be at a positive inflection point, helped by factors external (collapse in once-fashionable growth/new economy stocks) and internal (proven ability to win contracts outside Malaysia while also devoting significant resources to improve ESG factors). Local opportunities are also growing – besides reaffirmation that MYR50b MRT3 project will proceed, post-general election (GE15) outcomes may include the resuscitation of the c.MYR70b KL-Sing High-Speed Rail (HSR; which will also catalyse the Bandar Malaysia mixed property development), acceleration of the MYR32b Penang Transport Masterplan and more (post-Gamuda/LITRAK highway sales) highway restructurings, potentially involving IJM and/or Prolintas.
Maybank IB has BUY ratings on big-caps Gamuda and IJM, highlights being: • Gamuda (GAM MK): outstanding E&C orderbook was a record MYR14b (24% domestic, 76% overseas) as of end-Jul 2022. FY22 property pre-sales was also a new record at MYR4b (+38% YoY; 51% domestic, 49% overseas). The internal targets are even higher MYR16b orderbook replenishment and MYR4.5b property presales in FY23.
Launched “Gamuda Green Plan 2025” in 2021, and scores a top-quartile 68 per MIBG’s proprietary ESG scoring. • IJM (IJM MK): recent job wins lift outstanding construction order book by 16% to MYR4.6b, providing visibility beyond FY24. Net gearing is now <30% while concession assets (port, highways) are showing strong recovery. Re ESG, a new Sustainability Roadmap FY23- FY25 is integrated into divisional roadmaps, accompanied by specific performance measures; ESG score is a robust 63
Anand Pathmakanthan
Head of Regional Equity Research Maybank IB
