In the latest earnings season, companies under our coverage showed a mixed performance. To recap, Gamuda's 3QFY24 results align with our projections, bolstered by its diversified portfolio and strong contributions from overseas projects. The company's growth potential appears sustainable, underpinned by a substantial orderbook of RM26.5bn and robust unbilled sales of RM6.7bn. Similarly, Kerjaya demonstrates a solid market position with a growing orderbook of RM1.3bn, which is expected to swell further, fuelled by consistent job flows from related party transactions (RPT) and active tenders in the data center and industrial segments. In contrast, SunCon's earnings fell below expectations due to our optimistic assumptions on earnings recognition timing, prompting a downward revision in our forecasts. This reflects a more cautious stance on its near-term prospects despite its active involvement in various tender exercises. Meanwhile, AQRS's performance was weaker than anticipated, with higher operating expenses weighing on its earnings. However, we believe the company long-term growth trajectory remains promising, underpinned by its strategic property projects, with an expected GDV of RM1.3bn, primarily from The Peak and E’Island Lake Haven and potential public construction projects in pipeline.
All in all, our positive outlook for the sector remains intact, driven by the underlying resilience of the companies and alignment with growth opportunities within the landscape. Notably, Gamuda, Kerjaya, and SunCon declared higher dividends compared to the corresponding quarters, reflecting YoY dividend growth of 66.7%, 25.0%, and 16.7%, respectively. This upward trajectory signals their robust financial positions and commitment to maintain sustainable dividend payouts.
The construction sector continues to thrive, with companies like Gamuda and SunCon benefiting from a favourable outlook and leading in data center projects. For 2H2024, we anticipate an acceleration in project awards, driven by the long-awaited rollout of large-scale infrastructure projects, including the Penang LRT, Northern Coastal Highway, Pan Borneo Sabah, Penang Airport expansion, and essential flood mitigation initiatives. Furthermore, progress on the MRT3, particularly in land acquisition, coupled with a rise in high-value private-sector contracts in data center and semiconductor foundries, is expected to provide additional momentum. Potential catalysts, such as the Johor-Singapore Special Economic Zone and Johor’s structural rejuvenation initiatives, are also set to enhance sector sentiment.
We maintain our OVERWEIGHT stance for Construction Sector, with a BUY call for Gamuda (TP: RM9.50), Kerjaya (TP: RM2.62), and AQRS (TP: RM0.49), meanwhile HOLD for SunCon (TP: RM3.90). This recommendation is underpinned by robust momentum in infrastructure developments as well as heightened demand for semiconductor facilities and data centers.
Source: BIMB Securities Research - 2 Sept 2024
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