RAM's Credit Pulse report said the sector’s the construction sector was the sole sector with a positive outlook with its growth prospects moving forward remaining firmly supported by the steady roll-out of infrastructure projects.
PETALING JAYA: The construction sector continues to flourish amid relatively lean times for Malaysia and the sector is the fastest growing GDP component in the first half of 2016 growing at 8.9% with civil engineering’s growth at a 20% year-on-year growth, said RAM Rating Services.
Its Credit Pulse report said the sector’s the construction sector was the sole sector with a positive outlook with its growth prospects moving forward remaining firmly supported by the steady roll-out of infrastructure projects.
“The RM29.7bil of infrastructure awards in the first half of the year has already exceeded the full-year total for 2015, with some RM30bil more in the pipeline,” it said.
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“Works done (here) surpass that of residential and non-residential properties. Some large infrastructure projects are only at the initial stages and will support sector growth, which is timely given the cooling of the property industry,” the report said.
The sector had a stable credit trend outlook.
RAM Ratings noted that large public listed contractors such as IJM Corp Bhd and Gamuda Bhd have boosted their order books.
Both of these companies’ order books now exceed RM8bil, and their earnings visibility remains steady.
“The order books of the top 10 construction firms listed on Bursa Malaysia cover at least 1.4 times their construction revenue. However, only half of them posted broader construction margins in the first half of 2016,” it said.
“Coupled with job concentration, their execution risk is amplified. Firms will have to navigate cost pressures from employee levies and higher wages. The rebound in prices of steel bars (by about 10% in the year to date) could also erode margins,” it added.
In the bigger picture outlook, RAM said that it expects GDP growth to improve to 4.5% next year from the expected 4.2% in 2016 due mainly to the stabilising pace of domestic demand and resilience in external demand.
RAM said that domestic demand will remain the principal driver of growth adding that big-ticket infrastructure projects will also remain crucial to investment growth while the key downside risks to its forecasts will be from global trade momentum.
Meanwhile, some tolled highways will see an alternative for users of several RAM-rated toll roads with the commencement of the MRT Line 1 – with Phase 1 (from Sungai Buloh to Semantan) in December 2016 and Phase 2 (from Semantan to Kajang) in July 2017.
Despite this alternate offering for users, RAM however noted that the pricing of park-and-ride services and a seamless last-mile connection for commuters still remain key in boosting ridership figures and enticing users.
The tolled roads sector had a stable sector outlook and credit trends.
“Among the toll concessionaires in RAM’s portfolio, five out of seven are expected to have stable credit profiles in 2017, backed by their established traffic profiles and the government’s compensation payments,” it said.
RAM also added that toll concessionaires may have to curtail distributions to shareholders to sustain their debt-servicing aptitude given the risks involving traffic migration to the LRT extension and MRT Line 1, and delays in compensation from the Government.
