AmInvestment bank cautious on construction sector outlook

Kuala Lumpur: AmInvestment Bank Bhd remained cautious on the outlook of the local construction sector.

In a research note Thursday, the investment bank said the recent news on the Mass Rapid Transit Line 3 (MRT3) potentially commencing work in the second half of the year aside, the fact remained that the government would have very limited room for fiscal manoeuvre given the elevated national debt.

It added that the government’s fiscal stand was further weighed down by the economic impact of the Covid-19 pandemic, including reduced tax and petroleum revenues as well as the massive relief spending to cushion the economic impact of the pandemic. “We believe Sunway Construction Group Bhd can weather the sector downturn better given its proven ability to compete under an open bidding system, coupled with the availability of building jobs from its parent and sister companies under the Sunway Group,” AmInvestment Bank.

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However, it added that valuations were fair at 13x to 17x forward earnings on muted sector prospects. With the Covid-19 infection situation in India spinning out of control in recent weeks and potentially into a prolonged crisis, AmInvestment Bank believed that there could be concerns on Sunway Construction over the progress of its projects in India, and hence the impact on its earnings as well as the safety of the staff in India, and hence the impact on its environmental, social and governance (ESG) rating.

Sunway Construction has returned to India since 2020 following the award of two highway projects based on a hybrid annuity model, both in Tamil Nadu.

According to statistics compiled by crowd-sourced website Covid19India, the Tamil Nadu state at the southern tip of India was not considered as one of the epicentres of India’s massive second Covid-19 wave, with only 16,233 confirmed cases per one million population.

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AmInvestment Bank said the sites of both Sunway Construction’s projects were in the sparsely populated outskirt of the Tamil Nadu state. “Sunway Construction only has a handful of staff members, comprising Malaysia and India nationals, in India and they work remotely from Hyderabad in the Telangana state with relatively low confirmed Covid-19 cases,” it added.

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