KUALA LUMPUR (July 21): CGS-CIMB Research has maintained its “neutral” rating on the construction sector and said the sector is facing several headwinds in the second half of 2022 forecast (2H22F), adding that the recent move by the government to withhold new mega projects is an overhang risk.

In a note on Thursday (July 21), the research house said although sector P/BV valuation is appealing, it does not expect the typical pre-election contract flow to occur ahead of the 15th general election (GE15), limiting trading angles.

CGS-CIMB said it was wary about the negative impact of rising material prices.

“Margin compression risks are company-specific and higher for small- to medium-sized contractors/property developers (with limited variation of price (VOP) advantage with its clients).

“Meanwhile, we believe larger contractors that have a bigger proportion of order book with escalation clauses are more insulated.

“Our stock picks for 2H22F are Gamuda Bhd, IJM Corp Bhd and HSS Engineers Bhd.

“We retain our neutral sector rating. MRT 3 is the sole sector bright spot,” it said.