News: Construction Stocks to Rebound After GE14

Apr 5, 2018

Market watchers expect share prices of construction companies to recover after the results of 14th General Election (GE14) are announced, reported The Borneo Post on Wednesday (4 April).

“Based on our observation of the previous election in 2013, share prices of construction companies such as IJM Corporation Bhd, Gamuda Bhd, Cahya Mata Sarawak Bhd and Malaysian Resources Corporation Bhd responded with advancements from the date of the results,” said MIDF Amanah Investment Bank Bhd (MIDF Research).

The investment service firm thinks that the Parliament would be dissolved within the next 10 days, as Barisan Nasional’s election manifesto is set to be announced on 7 April.

“The announcement on the dissolution is expected to add heat of interest to construction companies as it provides clarity to the implementation of large infrastructure projects,” said MIDF Research on Tuesday.

Meanwhile, the research house noticed that loans to the construction industry has recently declined to RM7.2 billion compared to RM8.3 billion in January.

Nevertheless, the prior RM8.3 billion loan disbursement and the present liquidity rate has contributed to the attractive valuations of construction firms last month of 1.04 price to book value ratio and 16.42 price to earnings ratio.

“Although the disbursement rate of construction loans tapered, January’s credit largesse of RM8.3 billion is anticipated to buoy the sector’s growing need of working capital which is a leading indicator of earnings expansion,” it noted.

“Looking at the rate of disbursement, which matches with the recent news of Pan Borneo Sabah segment and the pickup in LRT3 awards in March, credit liquidity to the sector is sufficient to respond to upcoming projects awards and expectations of implementation.”

These include MRT3, East Coast Rail Link, Malaysia-Singapore High Speed Rail (HSR), Melaka Gateway Port, Kuala Linggi International Port and the Klang Port extension at Carey Island, as well as the Pan-Borneo Highway in Sabah and Sarawak.

Despite the uncertainty stemming from GE14, MIDF Research believe that now is a good time to purchase construction stocks at lower costs.

“Year-to-date, construction stocks under our coverage has registered anaemic returns, its share prices are clobbered to reflect growing uncertainty for big-ticket projects which fodders the sector’s orderbook.”

“Despite the risk perception, earnings yield for our coverage illustrates opportunity for accumulation. With these developments, we maintain our positive stance on the construction sector, advocating increase exposure,” added MIDF Research.
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