PETALING JAYA: Contract rollouts from the Mass Rapid Transit 3 (MRT3) and flood mitigation projects are expected to be the sole bright spots for the construction sector in the quarters ahead.

Overall, the lack of new large infrastructure projects in the pipeline will likely continue to dampen investor sentiment, said RHB Research.

Given the smaller size and shorter tenures of private jobs, RHB Research said it was not sufficient to revive the whole sector, even though private jobs have seen some growth momentum year-to-date (YTD).

“In the first quarter of 2023 (1Q23), the total value of projects awarded to contractors stood at RM25.1bil, down by 20% year-on-year (y-o-y).

“This was the lowest quarterly figure since 3Q20, indicating the sluggish pace of new jobs being awarded after the 15th General Election,” said the research house in a report yesterday.

RHB Research said the number of projects awarded in March was the lowest since August 2021, at RM7.8bil. On a month-on-month basis, RM800mil worth of projects were given out in April.

Private projects made up 82% of the total projects awarded YTD, with the remainder coming from government projects.

RHB Research added it expects development expenditure (DE) to be flattish in 2024 to 2025, at about RM83.6bil each year, even as the government aims to meet its DE target of RM400bil under the 12th Malaysia Plan (12MP).

“Assuming RM97bil to be the actual amount of DE for 2023, the total DE amount over 2021 to 2023 is RM232.9bil.

“This translates to a remainder of RM167.1bil for 2024-2025, or RM83.6bil on average for the remaining two years to meet the RM400bil DE target under the 12MP (2021 to 2025).

“Excluding the RM14bil allocated for 1MDB bond redemption under the total DE, the core DE for 2023 would be RM83bil,” the research house said.

For 2023, RHB Research said the DE allocation for the transport sub-sector could have fallen to 18.1% from 23.1% last year. Prior to the Covid-19 pandemic, the figure was 30.3% in 2018.

This may possibly indicate the lack of priority by the government towards large-scale infrastructure projects.

“The absence of additional revenue sources such as the goods and services tax may pose a downside risk to the government’s ability to meet its RM400bil DE target under the 12MP, with the government’s debt standing at 60.4% (preliminary figure) of gross domestic product in 2022 according to the Finance Ministry’s Economic and Fiscal Outlook and Revenue Estimates 2023,” RHB Research said.

On the MRT3 project, the research house stated the timeline of the project remains uncertain and this is a point of concern for contractors, particularly subcontractors.

“In our view, MRT3 civil contracts are likely to be rolled out sometime in 4Q23. This is after taking into consideration the cost review, the three-month public inspection period and the final approval from the government.

“Subcontractors would then need to wait another few months after the awarding of the main civil work packages to the main contractors,” said RHB Research.