Construction 1QCY24 Report Card: Plenty On The Plate, More To Come

Contractors delivered a superb 1QCY24 with their results either meeting or beating expectations. The sector’s earnings should improve further throughout the year as  works progress gathers momentum, while new jobs keep coming in.

Kenanga Investment Bank (Kenanga) said today (June 13) contractors under their coverage delivered a superb quarter with IJM’s FY24 (FYE: Mar) results beating forecasts owing to  strong performance from Kuantan Port backed by tariff hikes, while the 1QFY24 results of all its peers under Kenanga’s coverage met expectations. This compares with 50%/33%/17% of companies under their coverage beating, meeting and missing forecasts in  4QCY23. 

The expectation of a strong  contract flow has prompted Kenanga to raise their job win assumptions for GAMUDA (OP; TP: RM6.70),  SUNCON (OP; TP: RM3.85), and KIMLUN (MP; TP: RM1.47) while IJM (OP; TP: RM2.77) ended FY24  with job wins that surpassed their assumption. Our top pick for the sector is GAMUDA.

GAMUDA’s 1HFY24 core profit only grew 2% YoY, despite doubling in revenue, due to a lower blended construction margin on  low-margin overseas jobs which were mostly at the initial stage of implementation.

SUNCON’s 1QFY24 core profit  rose by a slower 4% YoY, despite a 16% hike in revenue, due to the doubling of its finance cost, largely to fund its projects in  India.

KERJAYA’s (MP; TP: RM1.90) 1QFY24 core profit rose 14% YoY on a 13% hike in revenue on higher billings from  construction as well as new property project namely The Vue @ Monterez.

KIMLUN’s 1QFY24 barely broke even as its new  construction projects were still at early stages of execution while WCT’s (OP; TP: RM0.66) 1QFY24 core loss narrowed YoY on  improved construction margins after adjustments for work prolongation and escalation in input and labour costs previously. 

Strong contract flow

GAMUDA has secured three sizeable contracts since Apr 2024 comprising data centre packages (RM1.74b), segment 1 civil work of the Penang LRT Mutiara Line (c.RM4.6b-RM5.0b) and a high-capacity signalling project in  Perth, Western Australia.

With its YTD FY24 contract wins of RM15.1b to RM16.0b being on track to surpass its job win target and Kenanga’s assumption of RM25b over two years in FY24-FY25, Kenanga raised their job wins assumption for the period to RM27b.

SUNCON  also secured a RM748m data centre job in Cyberjaya and an extra RM1.5b data centre job for Yellowwood in Johor, boosting its  YTD job wins to RM3.3b prompting Kenanga to raise the job win assumption to RM4.5b from RM3.5b previously.

IJM has secured a total  of RM3.73b new construction jobs in FY24, surpassing Kenanga’s assumption of RM3b. It has set a target of RM5b job wins in FY25.  YTD, KERJAYA has secured six new jobs worth a total of RM978.7m, on track to meet its FY24 job win target of RM1.5b while  KIMLUN has also secured a total of RM660.9m new contracts, against our FY24 job wins assumption of RM900m. 

Strong prospects

Kenanga remains bullish on the sector’s outlook on the back of the impending roll-out of mega infrastructure projects such as MRT3, Pan Borneo Phase 2 and flood mitigation projects, as well as private-sector building jobs underpinned by massive  investment in new semiconductor foundries and data centres.

Kenanga’s sector pick is GAMUDA for: (i) being the front-runner for the  tunnelling job for the MRT3, (ii) garnering a slice of action in the lucrative data centre building sector and positioned for more, (iii)  its ability to secure sizeable jobs in overseas markets, (iv) its strong earnings visibility underpinned by a record outstanding order  book of RM25.8b (excluding Upper Padas Hydro, Penang LRT and HCS projects), and (v) its inroads into the renewable energy  space. 

Kenanga maintains an OVERWEIGHT call for the construction sector.

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