Construction sector shares see more retail interest
View(s):Retailers gambling on an impending construction boom under the newly appointed Prime Minister Mahinda Rajapaksa generated retailer interest late last month on construction sector stocks.
Access Engineering PLC (Access) and MTD Walkers PLC (MTD) shares were up sharply in early trade on Colombo bourse on October 29 and they have generated retailer interest upto now, analysts say.
Access saw 3 million of its shares trade for Rs. 48.6 million and the price closing at Rs. 15.70, up by Rs. 2 or 14.5 per cent on October 29 with the construction sector gaining by 13 per cent on that day.
In terms of a firm’s financial assets, technical ability and field-specific experience there are just two construction firms are listed on the Colombo Stock Exchange, namely MTD Walkers and Access Engineering. But both firms are facing issues as the Treasury owes them money.
MTD, launched in 2001, has carried out more than 100 state funded civil engineering projects across a wide range of segments, including roads, bridges and flyovers, water infrastructures, marine work and telecoms projects. MTD came into operation in 2006, when MTD Capital bought a stake in the holding firm. MTD, which is plagued with sharp losses and most recently an image loss owing to a loan exposure to People’s Bank (PB) contracts mostly state-funded infrastructure projects. They raised Rs.3 billion in a debenture issue in 2015 which ran into issues. Subsequently MTD fully paid off the due Interest in line with the existing Trust Deed but still there are liquidity issues.
Industry analysts say that MTD, as with many other construction companies dealing in state-funded projects is cash strapped, as the government hasn’t paid them for completed projects. But the renewed interest in these stocks clearly show that retailers are hopeful these companies will do well under Mr. Rajapaksa, according to many analysts.
Other unlisted construction firms include Maga Engineering, Orient Construction, the International Construction Consortium, Sathuta Builders and Sierra Construction, among others are also said to be badly affected, analysts say.
According to industry statistics, the public sector contracts accounted for more than 94 per cent of the total value of contracts issued. While private sector involvement in the country has clearly increased since then, the state has likely remained the key player in construction. Given the considerable amount of work that has yet to be done, this situation bodes well for local players.
According to the Central Bank Report (2016), Sri Lankan Construction Industry contributed 7.6 per cent to Gross Domestic Product (GDP) and the value added of construction activities rebounded during that year recording a substantial growth of 14.9 per cent in 2016 recovering from 2.7 per cent contraction recorded in 2015.
GDP from construction in Sri Lanka decreased to Rs. 197,182 billion in the first quarter of 2017 from Rs. 200,970 billion in the fourth quarter of 2016.
More statistics show that GDP from construction from construction in Sri Lanka averaged Rs.133,568.86 billion from 2010 until 2017, reaching an all-time high of Rs.200,970 billion in the fourth quarter of 2016. It was at a record low of Rs.77,176 billion in the second quarter of 2010.
The construction sector declined somewhat in the first three months of this year by 5 per cent. The total output value of Sri Lankan construction industry in 2017 was estimated at US$3.03 billion (Rs. 480 billion).