Construction counters took a dip even as prospects of the sector looked positive following the revival of the East Coast Rail Link (ECRL) project.
Traders took profit from the shares which have rallied since the past week leading up to the confirmation of the mega project’s comeback last Friday.
Investors are also believed to be holding on to their stocks, hoping for more positive news such as the resumption of other mega projects such as MRT3 and the High Speed Rail (HSR).
Among key potential beneficiaries of ECRL, IJM Corporation Bhd
Prime Minister Tun Dr Mahathir Mohamad’s statement yesterday that Malaysia will not build the HSR just yet also sent some stocks, perceived to be linked to the project – southbound.
The construction index dropped 0.73% to 201.83 yesterday after rallying over 7% since the past week while the benchmark FBM KLCI also closed 1.87 points lower or 0.11% to 1,629.46.
A supplementary agreement inked between Malaysia Rail Link Sdn Bhd and China Communications Construction Company Ltd to pave the way for the resumption of the project has raised participation of local players from 30% to 40%.
While the percentage is higher, the share of the pie for local players, as pointed out by Kenanga Research, is actually smaller at RM17.6bil with the new project cost of RM44bil as compared to the previous share of RM19.7bil at a contract cost of RM65.5bil.
It added that the actual civil work packages might be worth even lesser than RM17.6bil as the amount is an illustrative one based on total project cost.
“We remain less excited with the revival of ECRL as we have concerns on potential execution risk and thin margins that may not bode well for potential ECRL participants.
“We reiterate our ‘neutral’ call on the sector.
“Hence we recommend a top slicing strategy and we strongly believe that the sector’s re-rating catalyst is premised on the government’s direction on the future development plans like the potential continuation of MRT3 and HSR,” it said in a research note yesterday.
MIDF Research is of the opinion that while the news on ECRL is positive, it has to be recognised that expectations on its revival have already been priced in.
“This was reflective on the KLCON performance which was seen moving faster than its fundamentals, ahead of the announcements,” said the research house, which maintained its neutral call on the sector.
CGSCIMB retained its “underweight” stance, as the run-up in share prices of rail prices was on an average of 43% ahead of the project’s revival.
It also said that the main focus for new ECRL tenders would be the realignment from Mentakab to Negri Sembilan and Selangor that will provide a direct link from Kuantan Port to Port Klang.
The research house added that the new southern alignment aims to leverage on the existing KLIA Express Rail Link and the upcoming MRT2 interchange in Putrajaya Sentral thus, underpinning ridership viability, which was in question previously.
UOB KayHian maintained its “market weight” call on the sector, as large-cap construction companies remain unexciting relative to selected small and mid caps in the sector.