Friday, February 3

Domestic contracts to drive construction sector in 2012

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GOOD YEAR AHEAD: Photo shows construction workers working on a building site. Contractors are likely to see a better 2012 as domestic contracts are expected to see a rise contributed by the MRT SBK line as well as the KLIA2 awards. — Reuters photo

KUCHING: Domestic contracts for the construction sector is expected to be higher this year as the packages are awarded for the elevated portion of the Sungai Buloh-Kajang (SBK) line of the mass rapid transit (MRT).

“For the final quarter of 2011, total contracts awarded came to RM3.7 billion, down 40.8 per cent year-on-year (y-o-y) and 41.4 per cent quarter-on-quarter (q-o-q),” according to a research report by OSK Research Sdn Bhd (OSK Research).

The research house attributed the poor fourth quarter showing to domestic contracts as it noted that 60.7 per cent of the awarded contracts in the quarter were domestic-based and 39.3 per cent were foreign.

Total contract awards for the full year 2011 stood at RM14.8 billion of which domestic jobs comprised 79.9 per cent, the report added.

OSK Research highlighted that the full year total domestic contracts amounted to RM11.9 billion against RM15.6 billion for 2010. While the total amount of awards was flattish at 84 contracts, the average size fell from RM188 million to RM141 million, which was an overall y-o-y decline in terms of value. On foreign contract awards, the fourth quarter amount stood at RM1.5 billion (34.5 per cent increase q-o-q).

Two sizeable jobs were highlighted to have driven the results, namely the RM1 billion WICET project in Australia which was awarded to Muhibbah Engineering (M) Bhd’s joint venture and the RM319 million Brunei International Airport upgrade which was won by TRC Synergy Bhd.

“For the full year 2011, total foreign contract worked out to RM3 billion, which was a 36.3 per cent contraction y-o-y,” the research house observed.

This came within OSK Research’s expectations, given the political unrest in the Middle East which was the largest contributor of foreign jobs to Malaysian contractors, making up for 45 per cent of the total amount.

“However, we are positive of a stronger first quarter this year,” the report stated.

The research house expected to see an increase for both q-o-q and y-o-y figures, mainly fuelled by some packages of the MRT elevated works. Two packages worth RM500 million to RM600 million each were expected to be awarded as soon as February or March.

It also believed that some awards would be coming from the Kuala Lumpur International Airport 2 which recently had its value revised from RM2 billion to RM3.9 billion.

“From a full year perspective, we expect 2012 to see an overall increase in domestic jobs, whose magnitude is nonetheless difficult to ascertain at this juncture,” OSK Research explained.

The research house justified its view by noting that if all the elevated packages of the SBK line (worth approximately RM12 billion) were awarded, the value of this portion of the project alone would have already matched that of the total domestic contracts for all of 2011.