There was a significant improvement in the sector’s earnings delivery (against our expectations) in 4QCY23 sequentially, with half of the companies under our coverage beating our forecasts. The sector’s earnings should improve further this year as work progress gathers momentum. Similarly, the job flow should accelerate with the roll-out of MRT3, Penang LRT, various flood mitigation projects as well as private-sector projects such as new data centres and semiconductor foundries. Our top picks for the sector are GAMUDA (OP; TP: RM5.45), IJM (OP; TP: RM2.54) and SUNCON (OP; TP: RM3.00).

There was a significant improvement in the sector’s earnings delivery (against our expectations) in 4QCY23 sequentially with 50%/33%/17% of companies under our coverage beating, meeting and missing our forecasts, as opposed to 17%/17%/67% in the preceding quarter. IJM’s 9MFY24 results beat our forecast due to better property billings while SUNCON’s FY23 results surpassed our forecast on robust progress billings. KIMLUN’s (MP; TP: RM0.89) FY23 results beat our forecast although not significant in absolute terms given its much reduced earnings base (RM7.1m in FY23).

On the flipside, WCT’s (OP; TP: RM0.66) FY23 results missed our forecast on a kitchen sinking exercise involving a lumpy RM209.4m reversal of construction profits owing to work prolongation and escalation in input and labour costs. While meeting our expectation, GAMUDA’s 1QFY24 core profit jumped 35% due to strong overseas earnings on higher construction billings from Sydney Metro West and maiden earnings from DT Infrastructure. Meanwhile, KERJAYA’s (OP; TP: RM1.90) FY23 core profit leapt 20% on higher construction and property billings (property earnings led by new project The Vue @ Monterez).

Positive forward guidance. Generally, builders guided for higher new job wins this year on the back of impending roll-out of mega infrastructure projects. GAMUDA guided for RM25b new job wins within 24 months, while SUNCON raised its guidance for new job wins in FY24 to RM3b from RM2.5b. While WCT has not secured any new key jobs in FY23, it also guided for bullish new job wins of RM3b (vs. our more prudent assumption of RM1b). Meanwhile, IJM’s YTD FY24 (FYE: Mar 2024) new job wins of RM3.62b has already exceeded its guided RM3.0b and we expect RM4.6b job wins in FY25 (FYE: Mar 2025). On the other hand, KERJAYA has secured a total of RM377.9m YTD job wins in FY24, against assumption of RM1.5b. KIMLUN’s YTD new jobs in FY24 is RM133.6m against our full-year job win assumption of RM750m.

Strong prospects. We remain bullish on the sector’s outlook on the back of the impending roll-out of mega infrastructure projects such as MRT3, Penang MRT and flood mitigation projects, as well as private-sector building jobs underpinned by massive investment in new semiconductor foundries and data centres. Our sector picks are GAMUDA, IJM and SUNCON. Maintain OVERWEIGHT.

Source: Kenanga Research - 11 Mar 2024