Cloudy construction outlook from 12MP uncertainty

Amidst the uncertainty in the rollout of public infrastructure projects locally, a number of players have ventured or returned to overseas markets. — Bernama photo

KUCHING: Uncertainty surrounding the tabling of the 12th Malaysia Plan (12MP) scheduled for March 2021, prior to the declaration of a state of emergency nationwide from January 12 to August 1, 2021, has reinforced AmInvestment Bank Bhd’s (AmInvestment Bank) underweight stance on the local construction sector over the next six to 12 months.

AmInvestment Bank recapped that it has been close to a month since the suspension of parliament following the declaration of a state of emergency nationwide.

“However, it is still unclear if the tabling of the 12MP (2021 to 2025) would be postponed to another date, or the government would roll out the five-year development plan for the nation in the absence of the scrutiny by parliament (in which case, the legitimacy of the plan could be subject to challenges in future),” the research firm said.

“Flashback to the year 2015, its predecessor the 11th Malaysia Plan (11MP) (2016 to 2020) was tabled by the then Prime Minister Datuk Seri Najib Razak on May 21, 2015 and debated by the members of parliament for five days from May 25, 2015.

“Thereafter, replies from ministries were heard for three days before the plan was finally approved by parliament slightly past midnight on June 16, 2015. It took close to a month to compete the entire process.”

The uncertainty surrounding the 12MP aside, AmInvestment Bank maintained its view that the government will have very limited room for fiscal manoeuvre given the elevated national debt, weighed down further by the economic impact of the pandemic (including reduced tax and petroleum revenues), as well as the massive relief spending to cushion the economic impact of the pandemic.

“All these have culminated in Fitch Ratings’ December 2020 downgrade of Malaysia’s long-term foreign-currency issuer default rating to ‘BBB+’ from ‘A-‘, on the heels of S&P Global Ratings’ June 2020 downgrade of Malaysia’s outlook to negative from stable.”

The research firm believed the recent termination of the KL-Singapore high-speed rail project should serve as a wake-up call to the market.

“Operationally, construction players are subject to higher operating cost and lower efficiency (due to restrictions on working hours and worker density on the site, and the additional expenses incurred in upgrading the dormitory for foreign workers in compliance with the Worker’ Minimum Standards of Housing and Amenities Act 1990, also known as Act 446) and higher operating risk (due to the potential stop-work order or enhanced movement control order or EMCO on the dormitory in the event of Covid-19 infections, shortage of foreign workers as borders remain largely closed and the policy to reduce the country’s reliance on foreign workers).”

AmInvestment Bank gathered that amidst the uncertainty in the rollout of public infrastructure projects locally, a number of players have ventured or returned to overseas markets.

“For instance, Sunway Construction in 2020 bagged two highway projects worth more than RM800 million in India on a hybrid annuity model, while Econpile secured a US$85.7 million (RM347.6 million) piling and substructure work subcontract for an ‘integrated entertainment complex’ in Phnom Penh, Cambodia.

“Meanwhile, Gamuda has been shortlisted for two tunnelling packages of the A$20 billion (RM60 billion) Sydney Metro West and the A$2.6 billion (RM7.8 billion) Sydney M6 motorway in Australia.”

Overall, the research firm may upgrade its ‘underweight’ call on the sector to ‘neutral’ or ‘overweight’ if the government decides to forge ahead with the implementation of key public infrastructure projects, despite the weak fiscal position.

 

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