Alliance Research has maintained "neutral" rating for the construction sector as domestic contracts flow started on a weak note in the first quarter of this year.
"Despite the expected pick up in momentum for the coming quarters, we maintain our view that domestic contracts will come in lower year-on-year for 2014, given the fiscal tightening measures and property "cooling" measures," said the research house.
Alliance Research said the fiscal tightening measures would reduce public sector contracts and the property cooling measures would slow down private sector contracts.
"As such, we trim our 2014 domestic contract awards target by RM1 billion from RM13 billion to RM12 billion. There is a risk of further downgrades should momentum not pick up in the coming quarters as we anticipated," the research firm said in a note on 4 April.
Alliance Research said the coming quarters would see a pick up in domestic contract awards, driven by jobs such as the Permodalan Nasional Bhd-owned highways, Dash and Suke (totalling RM8 billion), West Coast Expressway (RM5.9 billion), civil works for project 3B power plant (RM1.7 billion to RM2.2 billion) and Langat 2 Water Treatment Plant (RM1.2 billion).
"The foundation works award costing RM74 million for the proposed building at Warisan Merdeka to Pintaras Jaya last month is a positive sign that the project would take-off soon," the research house said.
Hence, Alliance Research maintained its "neutral" rating on the construction sector, given the expected lower domestic contract flows for 2014.
"Our top pick remains Gamuda Bhd as its earnings anchored by the existing Mass Rapid Transit line while it is also set to benefit from the roll out of the MRT line 2," the research house added.
- BERNAMA
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