“We are positive on the decision to allow construction works to resume following the one-month loss of billings brought about by movement control order (MCO) phases 1 and 2," said CGS-CIMB.
PETALING JAYA: The government’s decision to allow construction works to resume will help arrest cash flow issues and mitigate a worst-case risk of potential losses in the event of a prolonged stop work order, said CGS-CIMB.
In a sector report yesterday, the research house expects the resumption of works to be implemented in stages and to also benefit ongoing major infrastructure projects, including MRT 2 and LRT 3, which are largely undertaken by major rail contractors.
“We are positive on the decision to allow construction works to resume following the one-month loss of billings brought about by movement control order (MCO) phases 1 and 2. “Progress billings should pick up at a slower rate due to the disruption in the building material supply chain and additional construction site restrictions during MCO phase 3, ” said CGS-CIMB.
UOB Kay Hian in an earlier sector report had highlighted that demand recovery for building materials would be slow post-MCO.
As such, UOB Kay Hian does not expect further hikes for bulk cement prices, easing slightly from its peak in February.
It said the implementation of the previously announced price hike of RM30 to RM40 per tonne is likely to be delayed to the second half of 2020 from the initial target of March.
Meanwhile, the steel segment will remain under pressure owing to weak demand and excess supply.
Apart from MRT 2 and LRT 3, other major projects that will benefit from the resumption of construction works include the East Coast Rail Link (ECRL) in terms of project design, railway scheme, and land acquisition. However, CGS-CIMB opined that the MCO has already pushed the tenders further into the second half of 2020.
The research house added that major road and highway projects should also restart, such as Pan Borneo Highway, Sungai Besi-Ulu Kelang Expressway and Damansara-Shah Alam Elevated Expressway.
“In due time, other property, commercial, residential, high-rise projects nationwide will be allowed to resume work, in our view, subject to limitations on the number of workers on-site, ” said CGS-CIMB.
Last Friday, the government announced that selected economic sectors would be allowed to operate during and beyond the extension of the movement control order (MCO) to April 14-28.
This applies to the construction sector, which was ordered to halt construction works since the MCO was enforced on March 18.
The lifting of the stop work order will be done in stages on condition of strict compliance to safety relating to Covid-19.
“We project a positive knee-jerk reaction for contractor’s share prices as the resumption of works (albeit not on par with pre-MCO level of billings) suggests a less severe negative impact of the MCO on earnings.
“We reiterate a Neutral stance following this news as the post-MCO outlook for new infrastructure contracts remains weighed down by uncertainties.
“Under our coverage, we see a short-term reprieve for the share prices of IJM Corp Bhd, MALAYSIAN RESOURCES CORP Bhd, Sunway Bhd and YTL Corp Bhd, which are major rail contractors impacted by the restrictions of the MCO, ” said CGS-CIMB.
https://www.thestar.com.my/business/business-news/2020/04/14/construction-work-resumption-deemed-timely
