Analysts Bullish on Construction Sector as Malaysia Unveils RM220 Billion Infrastructure Projects
Construction stocks have demonstrated robust growth recently, with the index climbing over 15% since the beginning of the year. The $Bursa Construction (0003I.MY)$ is currently trading at a forward price-to-earnings ratio (Forward PE) of 15 times, surpassing its 10-year average of 12.7 times.
Key factors contributing to the index's rise include:
1) 2024 Fiscal Budget Propositions:
The government has allocated a substantial amount for the development of infrastructure plans, launching several major projects such as highways, rapid transit systems, high-speed rail, and flood prevention works. Numerous transportation, telecommunications, and energy projects are expected to drive significant demand for construction equipment. CIMB Bank emphasized that the introduction of flood mitigation projects could provide additional momentum for the Malaysian Stock Exchange Construction Index, benefiting contractors with a strong track record in flood prevention works.
2) Increased Construction Opportunities in Johor Special Economic Zone:
Kimlun Corporation Ltd has expressed interest in bidding for flood mitigation projects in the state of Johor. The Malaysia-Singapore Rapid Transit System, expected to be completed by the end of 2026, is seen as an economic catalyst for southern Johor, enhancing connections with Singapore and revitalizing the southern property market.
3) Foreign Investors Optimistic About Malaysia's Growth Potential and Strategic Position:
This optimism is boosting the construction industry (residential and commercial building). Maybank Investment Bank indicates that the positive momentum of foreign direct investment under Malaysia's 2030 New Industrial Master Plan will provide construction opportunities for higher-value industrial building types.
4) Easing Cost Pressures:
Since the start of 2023, the costs of most building materials and fuel, except cement, have eased. This relief is expected to facilitate the rollout of contracts in both the public and private sectors.
Major Banks Rally Behind the Construction Sector:
Analysts at Hong Leong Investment Bank suggest that 2024 will be the prime time to invest in construction stocks, considering the lag time in economic multiplier effects and the impending general election.
Below is the list of the top 5 constituents of the construction stock index(data as of 2024/3/27):
Source: moomoo, Bloomberg, the Star, the edge malaysia
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