RHB: Possible overhang for construction sector as GE15 looms
- RHB Research noted that a negative outcome would be a hung parliament, which could fuel uncertainty about the sector’s outlook.
KUALA LUMPUR (September 9): There is a possible overhang for the construction sector amid the impending 15th general election (GE15), RHB Research said.
“De-risking activity could ramp up ahead of the upcoming general election with market talk suggesting GE15 could occur as early as 4Q22 (fourth quarter of 2022) after the tabling of the 2023 budget was brought forward to October 7 (from October 28).
“Nevertheless, catalysts for sector revaluation could arise after GE15. Assuming no substantial shifts in policies take place after GE15, [a] The situation could bode well for the implementation of ongoing and future projects,” the research house said in a note Friday, September 9.
He noted that a negative outcome would be a hung parliament, which could fuel uncertainty about the sector’s outlook.
“We like names in the small and mid-cap construction sector such as Kerjaya Prospek Group Bhd and Sunway Construction Group Bhd. Overall, we think they have favorable catalysts, supported by stable replenishment rates from the order book and strong balance sheets,” he added.
On the other hand, RHB said a pre-election pump priming theme may materialize but may be geared more towards smaller-scale entrepreneurs.
He said the government’s limited fiscal space is evident from the public debt-to-gross domestic product ratio of 63.8% at end-June 2022, down from 63.4% at end-December 2021.
Large-scale projects could still be announced but would require private funding deals, RHB said.
“However, the risk of low private sector participation in construction could increase if contractors, with previously strong balance sheets, could no longer meet these financing needs if they took on more projects later on,” he said. he declared.