Rail projects to be construction sector's growth locomotive this year

PETALING JAYA: The construction industry is expected to record growth of 8.5% and 8.3% for 2016 and 2017 respectively, with railway projects being the catalyst for growth this year.
“This year will be another busy but good year for the construction industry. Although there are already a number of ongoing high-value projects, the government still has big plans for the industry,” Master Builders Association Malaysia president Foo Chek Lee told SunBiz.
He said the government’s big plans include the East Coast Rail Line, KL-Singapore High Speed Rail, various housing projects and clean water supply projects that are expected to be implemented this year.
“Infrastructure projects such as the MRT Line 2 and 3, LRT2, KL-Singapore High Speed Rail, Pan Borneo Highway, East Coast Rail Line are among the high-impact projects that will be driving the industry to another high-performance year.
“Besides that, under Budget 2017 the government will continue to fork out various means of financial assistance, subsidies and incentives to stimulate the growth of housing sector, particularly the construction of affordable housing. Therefore, this will continue to stimulate construction industry growth for the next few years,” he added.
Foo said the numerous projects in the pipeline will see the construction industry growing 8.3% this year. For 2016, he expects the industry to lock in growth of 8.5%, slightly higher than the 8.2% recorded in 2015.
Last year, the construction industry recorded a remarkable performance despite global economic uncertainties, boosted by high-impact projects identified under the 11th Malaysia Plan as well as ongoing projects.
“Between January and November 2016, the value of projects increased 36% to RM121 billion compared with RM89 billion in the same period in 2015. Almost 50% of the projects were propelled by infrastructure works followed by residential, non-residential and social amenities,” Foo said.
Meanwhile, analysts believe that the construction industry will continue to record earnings growth this year despite the expected reduction in value of job awards.
“The total value of contracts to be awarded this year is expected to decline slightly versus last year but the outlook is still positive for the sector, with strong support coming from railway projects,” said an analyst, who declined to be named.
Zooming in on railway projects, he said works on the MRT 2 project are expected to begin this year while job awards that can be expected this year include the Gemas-Johor double tracking project and LRT 3.
Other projects to watch out for include the East Coast Rail Line and the KL-Singapore High Speed Rail.
Hong Leong Investment Bank (HLIB) Research analyst Jeremy Goh said the construction industry will see a downward normalisation this year after witnessing a record showing of contract flows in 2016.
In his research report last week, Goh said contract flows were up 158% year-on-year last year at RM56 billion, surpassing the previous record of RM28 billion in 2012.
“Coming from a significantly higher base, it would only be rational to expect a downward normalisation in job flows for 2017 and expect this to come in at RM25 billion,” he said in his report.
Goh said real construction growth has outperformed overall gross domestic product (GDP) expansion since the first quarter of 2012 and is expected to continue this year at 10% against overall GDP growth of 4.5%.
His top picks are Gamuda Bhd for large-cap contractors and George Kent (Malaysia) Bhd for small-cap contractors. Gamuda is expected to see a revival of earnings growth while George Kent will be a key rail play. “We also like Pesona Metro Holdings Bhd as it offers exposure to a pure construction play with incoming recurring income stream,” he added.