THE revival of the East Coast Rail Link (ECRL) project has not created much spark in an already muted construction sector as analysts remain cautious on the industry and stocks.

They are still wary about the uncertainties involved in the project, especially on the status of contracts already awarded.

Prime Minister Dr Mahathir Mohamad said yesterday the participation of local firms for civil works has been increased to 40% from 30% under the renegotiated supplementary agreement inked between China Communications Construction Company Ltd (CCCC) and Malaysia Rail Link Sdn Bhd on April 12.

However, as the market was closed over the weekend, the construction index on Bursa Malaysia fell 1.14% to 203.32 points on Monday.

It remains unknown if old contracts will be continued or retendered, Inter-Pacific Securities Head of Research Pong Teng Siew told The Malaysian Insight.

“Well, he (Dr Mahathir) did mention that local contractors will be getting about 40% of the work involved but exactly which company will be getting the job? I think investors have decided that they want to wait until the actual announcements come out and the actual awards are announced.

“We are also not sure whether old jobs will continue as previously awarded or will they be retendered.

“In the absence of confirmation, investors have decided that they want to wait and there was profit-taking today (in the stock market yesterday),” he said when asked on stocks such as Lafarge Malaysia Bhd and HSS Engineers Bhd.

Lafarge Malaysia’s RM270 million contract to supply cement for the project and the two contracts awarded to HSS Engineers’ associate company, HSS Integrated Sdn Bhd, to provide supervising and design consultancy services, totalling to RM107.5 million, hit a snag after the project was suspended.

Pong said there has been profit-taking from stocks related to ECRL and construction as investors adopt a wait-and-see approach as they wait for further announcement on companies that have bagged the work packages and supply deals.

The trend is expected to continue over the next few days.

Lafarge Malaysia closed 3 sen lower at RM2.45 after trading on Bursa Malaysia yesterday. HSS Engineers remained unchanged at RM1.19 at 5pm yesterday.

AmInvestment Bank said in a research note that while the revival of the project is positive for the construction and building material sectors, it is not a game-changer for these industries.

“While the revival of the ECRL is positive to both the construction and building material sectors, it is no game-changer to these industries. We estimate that the additional demands for cement and steel bars only amount to 1-2% of the current annual consumption of cement and steel bars locally.

“Also, given the government’s strong commitment to fiscal prudence, we are concerned that this could be a ‘zero-sum game’ as the revival of the still massive ECRL may deprive the government of its ability to implement other infrastructure projects over the next four to five years.”

It added that the market has also factored in the news of the revival given the strong rally in share prices of construction stocks in the last one to two months.

The research house maintained an underweight rating on the construction sector based on factors, such as the continued cutback in public infrastructure spending as the government tightens its belt, the prolonged downturn in the property market which is plagued with oversupply in all segments and the deterioration in cash flow along the entire value chain due to slow payment (or non-payment) by both public and private sector clients, which has also escalated to defaults and contract disputes in some cases.

MIDF Research said the news could fuel some optimism in the lacklustre sector.

It said the share of the sectors’ contribution to the gross domestic product (GDP) has been on the declining trend since 2012.

“However, we noted that trend is declining, as private and public investments tapered in recent years.

“In terms of sector’s valuation, it was seen falling immensely in the greater part of 2018 following a series of construction news deemed negative by investors. Largely, sentiment turned negative due to possible postponement and cancellation of huge scale railway projects, namely Light Rail Transit 3, Mass Rapid Transit 2, high-speed rail and ECRL to name a few.”

With a contraction in public investment by 5.4% in 2018, the growth of the construction sector hit a seven-year low, growing only at 4.8%.

Meanwhile, Master Builders Association of Malaysia (MBAM) welcomed the revival of the project, which it said came at a critical time, where contractors have been pushing for more projects as the second quarter of the year begins.

“The announcement is definitely an added confidence booster for the construction industry, especially when we take into account the announcement on March 31 that a total of 121 infrastructure projects nationwide at more than RM13.9 billion will go on following cost renegotiations by the government,” said the association’s president Foo Chek Lee in a statement.

“MBAM is happy as the government has listened to our feedback to activate the construction projects and also to increase local contractors’ participation in projects in the country.”

Foo said the move of increasing the participation of local firms to 40% will alleviate the pain of local contractors and elevate their gain for 2019.

“However, we hope that the government will give full complete packages instead of ‘sub-labour works only’ when distributing the project to local contractors under the ECRL.”

Malaysia successfully renegotiated the project with China to reduce the construction cost to RM44 billion from the initial RM65.5 billion.

The new supplementary agreement will also see the Malaysian side be involved in the construction process which was previously not part of the original contract. – April 16, 2019.