Checking the SCORE board

SCORE for Sarawak: Towards a developed state echelon

Sarawak – having seen an average economic growth rate of less than five per cent per annum over the last two decades – is now well on its way to realising robust growth with the advent of gargantuan catalysts spearheaded by the Sarawak Corridor of Renewable Energy (SCORE).

Currently, the state contributes about eight per cent to Malaysia’s overall real gross domestic product (GDP) growth but is poised to grow this contribution via wide economic strides forward with large scale industrialisation, modernisation and all related activities enveloping these growth nodes.

Such enormous measures require massive amounts of energy and natural resources and so Sarawak has resolved to leverage of its tremendous energy potential in the form of hydroelectric power generation, as well as mineral sources like oil, natural gas and coal.

These energy sources would be used for the purpose of large scale industrialisation As such, the state has undertaken a long-term masterplan to fully utilise these resources for economic growth and development, as well as raising the standards of living and income per capita for Sarawakians in general.

Gauging the growth potential

SCORE’s energy generation strategy is to harness some 20,000 megawatts of potential hydroelectric power in Sarawak, some 1.46 billion tonnes of coal, 1.3 billion barrels of oil and 40.9 trillion cubic feet of natural gas located in the central region, according to the research arm of Kenanga Investment Bank Bhd (Kenanga Research).

“The project would cover some 70,709 square kilometres of territory (about half the size of Peninsular Malaysia) or home to nearly a million people.

“The government projects 1.6 million jobs opportunities to be created under SCORE by its target completion date of 2030.
“With SCORE driving Sarawak’s economy, the state aims to achieve GDP growth of up to 10 per cent by 2015 compared to below five per cent without it.

“At the rate the Sarawak economy is going, the state could be among the top three largest contributors to Malaysia’s economic growth in the next few years.

“Its contribution towards Malaysia’s total GDP could increase to slightly more than 10 per cent from its current 7.5 to eight per cent share,” it opined, adding that Sarawak’s GDP growth contribution was bested only by Selangor, Johor and Penang.

Kenanga Research further noted that much of the budget allocation in the 10th Malaysia Plan is being channelled towards improving infrastructure, particularly transportation, managing urbanisation and developing Sarawak as an energy development hub.

With SCORE leading the growth trajectory, it believes that Sarawak could exceed growth of five to six per cent by 2015, possibly outpacing the projected average national growth.

This would be premised on the progressive development of SCORE’s Phase 1 (2008 to 2015) projects, specifically the smooth implementation of a RM1.8 billion deep-sea port project in Samalaju.

External and internal risks

Kenanga Research pointed out that apart from external shocks, the other main challenge for Sarawak to achieve its higher growth potential would be the inability of the domestic economy to fully optimise the current development.

“Sarawak is under-populated and is in real need to be in industries that are value-added and capital intensive.

“Meanwhile, income distribution within Sarawak has been an ongoing issue, mainly due to the historically uneven spread of the population between urban and rural areas.

“The relatively higher unemployment rate does not help either. At an estimated 4.5 per cent in 2011 it is much higher compared to the national average of around 3.3 per cent.”

This also meant that Sarawak needed to step up its decade-long effort of economic diversification and population migration into more concentrated growth to bridge the income gap between the rural majority and the urban population.

BizHive Weekly has learned from Department of Statistics data that the state’s unemployment rate for 2012 was recorded at 3.5 per cent, still higher when in compared to the national average of three per cent.

Furthermore, mean monthly household income for the state had grown from RM3,581 in 2009 to RM4,293 last year, an increase of six per cent which was still lower than the average national growth of 7.2 per cent seen over the same period.

When taking the federal territories of Kuala Lumpur, Putra Jaya and Labuan as contributing entities, Sarawak ranked ninth out of 16 in terms of mean monthly household income – behind the likes of Melaka, Johor and Negeri Sembilan.

While the raw figures do serve as positive indicators of steps in the right direction for Sarawak, the fact remains that much work needs to be done to catapult the state to attaining the status of an economic powerhouse by 2030.

BizHive Weekly takes a look at the progress made by Sarawakian players Bintulu Port Holdings Bhd, Tanjung Manis Halal Hub Sdn Bhd and Cahya Mata Sarawak Bnd in its efforts to realise this objective.

Samalaju Port: Enhancing SCORE’s value accruement

Given the expansive stretches of economic activities that currently entails the Sarawak Corridor of Renewable Energy (SCORE), the proper execution and adequate capacity of transportation and logistics facilities for internal distribution and export are vital to the development corridor.

Focusing into the growth node of Samalaju – and more specifically, Samalaju Industrial Park – the products of manufacturing and processing activities of large entities such as Press Metal Bintulu Sdn Bhd’s smelters and that of the upcoming OM Materials (Sarawak) Sdn Bhd operations would be to the tune of several hundred thousand metric tonnes per annum.

Zooming out of Samalaju, the sheer throughput of Sarawak’s evergreen mainstay exports, such as petrochemical products, fertiliser, timber products along with palm oil, palm kernels, derivatives and generally all other goods, clearly points to the crucial need to have adequate logistics facilities in place.

Bintulu Port, currently the largest and deepest sea port in the state, has in recent years fortified its operational prowess to meet the needs of the region (and state as a whole) via facilities such as a dedicated container terminal, palm oil terminal and others to take on liquid, dry, containerised and break-bulk cargo.

In keeping up with the growing needs of SCORE-related activities, Bintulu Port’s holding company, Bintulu Port Holdings Bhd (BPH) is undertaking the ongoing development of Samalaju Port, a deep sea port that will be able to handle both bulk and liquid cargo.

On May 17 this year, the group revealed that the construction of the interim facilities at the Samalaju Port, comprising of two barge berths and one ‘roll-on roll-off’ ramp, to be completed by the fourth quarter of 2013.

The first phase of the proposed development will involve the construction of infrastructure for breakwater and revetment, capital dredging and reclamation works, as well as the construction of port facilities, operation and administrative buildings.

The first phase of the development to be completed by 2016 would comprise of two barge berths, three Handymax Berths and one Handysize Berth with a total annual handling capacity of 18 million tonnes of cargo.

The cost of the development was estimated to cost about RM2 billion inclusive of estimated finance charges incurred during construction and was envisaged to be funded by a combination of proposed sukuk, new equity issuance, internally generated funds and government grants.

According to Inside Investor in its ‘Inside Sarawak 2013’ report, BPH is expected to handle an estimated 956,000 metric tonnes of cargo generated by three investors in Samalaju Industrial Park through Bintulu Port and Samalaju Port.

By completion of the first phase in 2016, the main segment that would contribute towards the throughput of Samalaju Port would be the bulk sector, particularly the dry bulk cargo consisting of aluminium, manganese ore, coal, silica quartz and so on.

BPH has identified four major growth sectors namely palm oil products, dry bulk cargo (including bulk fertiliser and woodchip) containerised cargo and the oil and gas sector, Inside Ivestor said in quoting BPH chief executive officer Dato Mior Ahmad Baiti Mior Lub Ahmad.

The expansion and target completion of port facilities in the next three to five years would see the development of a shore based terminal, additional palm oil bulking facilities, a new general cargo wharf, extension of the container terminal berth as well as the development of the storage yard, he said.

Tanjung Manis Halal Hub: The hidden giant of SCORE

The very name of Tanjung Manis conjures visions of a vast area rich with marine and freshwater life, dense vegetation and the promise of a halal production zone that dwarfs all other halal parks in Malaysia by significant degrees.

Indeed, the Halal Industry Development Corporation has described Tanjung Manis Halal Hub (TMHH) with an area of 77,000 hectares as the largest hub in Malaysia for upstream and downstream halal food and manufacturing activities.

Given the very industrial nature of the Sarawak Corridor of Renewable Energy’s (SCORE) core activities in Samalaju as well as power generation in the hinterland, Tanjung Manis does on the surface seem to be distinctly incongruent with the rest of the development masterplan.

Latent SCORE node

Inside Investor in its ‘Inside Sarawak 2013’ report opined, “Tanjung Manis has perhaps the most latent potential of all the nodes of SCORE, given its designated role as the halal hub of the corridor, built off of aquaculture and agriculture, all industries forecast to experience significant growth in the coming years due to deepened concerns over global food security.

“TMHH is strategically located in a deep delta that exports into the South China Sea, offering the potential for an export industry to spring up with channels to some of the fasting growing consumers markets in the world.

“The estimated US$2.3 trillion halal market remains largely untapped, portending a bright future for the industry once the world’s Muslims – the fastest growing population in the world – are broadcast the sales propositions that the industry is defined by: socially responsible business practices, cleanliness and, indeed, a spiritual piece of mind.”

Inside Investor noted that not only Muslims buy into the halal concept (citing investment interest from the Philippines and Japan as examples) and outlined that halal and the industries that revolve around it are much broader than meets the eye.

To note, TMHH is not confined to the geographical area of Tanjung Manis only as the latter is merely the first phase of development for the halal hub while Paloh, Pulau Bruit and Seredeng make up the rest of the enormous project.

The rich delta which links the tributaries of the Ranjung River to the South China Sea is to support a variety of halal-based industries: aquaculture, agriculture, agriculture-based biotechnology, research and development for value-added food products, cosmetics manufacturing and even a textiles industry for ‘forward-thinking halal fashion’.

Development stages

Phase 1 development in Tanjung Manis, which is focused on integrated aquaculture and agriculture-based biotechnology industries, is spread across a land bank of 13,300 hectares which in turn is segmented into six parcels of land.

Once almost inaccessible due to dense foliage, Tanjung Manis now has its own airport, which opened in 2003 and offers connections to Kuching while the newly completed Sibu-Tanjung Manis road makes it reachable from Sibu in 45 minutes.

“The executive summary of Tanjung Manis’ master development plan lists a number of investment opportunities in this subsector, including the large-scale production of high-value aquaculture species; seed and fry production (marine fry hatcheries); value-added, downstream processing of aquaculture and agri-biotech products; and aquaculture support facilities and logistics.

“To date, TMHH has received US$400 million of state-led investment into the development of infrastructure. Within the first phase of development, Phase 1A has thus far been the major recipient of infrastructure development, a zone that consists of over 1,000 hectares.

“Furthermore, the State Government of Sarawak and the Federal Government of Malaysia have committed approximately US$200 million to roll out additional infrastructure development projects in TMHH by 2020, addressing water, electricity, road and other utility needs of investors,” Inside Investor stated.

It added that Tanjung Manis would have its own township, located just to the west of the Phase 1A development and a five-kilometre road connecting the industrial hub was to be tendered this year.

The Tanjung Manis Food Industrial Park has been actively promoting investment in the rest of the Phase 1 development area, designated Phase 1B to Phase 1G in the area of large-scale aquaculture specifically.

“Tanjung Manis is strategically woven together by deep rivers that exit into the South China Sea, providing able access for large fishing and export vessels to ship marine and other products to some of the world’s fastest growing consumer markets in Southeast Asia and North Asia.

“A deep-water port, airport and deep-sea fisheries port facilities are currently available in TMHH, and form part of the integrated development model, the executive summary notes.

“Perhaps one of the most ideal features of the halal hub, the rivers of Tanjung Manis are naturally conducive to exportation,” it reckoned.

Opportunities abound

Given the diverse ecosystem within the vast area, agri-biotech opportunities have also been laid out, mostly involved in the aquaculture subsector which Inside Investor said on a global level would take up 52 per cent of all fishing activities by the year 2021.

It further illustrated that within the global aquaculture industry’s share by value in 2011, the Asia Pacific region commanded the lion’s share of 80.5 per cent, outdoing Europe’s 9.6 per cent and the Americas’ combined 7.3 per cent.

Clearly, the potential of TMHH as an investment vehicle for this lucrative market is tremendous, based on the presumption that all infrastructure, operational mechanisms, and supporting instruments are well-placed in a timely manner.

 

The CMS story: In stride with Sarawak’s growth trajectory

Cahya Mata Sarawak Bhd (CMS), described by segment of the investor market community as being a proxy to the Sarawak Corridor of Renewable Energy (SCORE), has also been touted as the lynchpin conglomerate of the state.

In response to the descriptions, CMS group managing director Dato’ Richard Curtis told BizHive Weekly that the group’s portfolio of businesses straddled many, though by no means all, of the economic drivers for Sarawak’s accelerating economic growth spearheaded by SCORE.

“The businesses can be conveniently categorised into two types and, due to the range of CMS’ involvement, it is not unreasonable for investors to view CMS as the company with the broadest involvement in SCORE.

“The first category involves businesses that focus on the infrastructure of the state. These cover cement manufacturing, quarrying and premix supply, construction and road maintenance, construction materials trading and township and property development.

“The second category focuses on SCORE and, in particular Samalaju and its fast developing industrial park, where world class energy intensive industries are progressively setting up.

“Within this second category of focus, CMS’ involvement is two-fold: covering, on the one hand, investments in energy intensive factories setting up in Samalaju and, on the other hand, in supporting roles.

“These supporting roles encompass the supply of construction materials (including cement), the provision of accommodation and other services for the 9,000 plus construction workers building the factories in Samalaju and as the master developer of the planned Samalaju township, these latter two roles in joint venture with Naim Holdings Bhd and state agency, Bintulu Development Authority,” he revealed.

SCORE activities

When asked about SCORE related activities, he pointed out three roles with the first being CMS’ 20 per cent stake in a joint venture with Australian listed OM Holdings Ltd to build and operate a ferro silicon and manganese alloys smelter.

The smelter is under construction with first production expected in the second quarter of 2014 (2Q14) and full production in the 2Q15.

With its strategic location on East Asian shipping routes, locked-in raw materials and production offtake arrangements, use of proven technology and the industry leading track record of OM Holdings, this is set to be a game changer for CMS going forward financially once it reaches full production in mid 2015.

RHB Research Institute Sdn Bhd (RHB Research) is largely in agreement with the statement as it opined in an April 8 stock update that the 20 per cent stake in the 600,000 tonne per year plant could reach a valuation as high as RM421 million.

In an updated report released June 28, it forecast RM270 million profit before tax for the financial year 2013 (FY13), an increase of 18.4 per cent from RM228 million reported for FY12.

Other works in Samalaju

CMS’ role in the provision of construction workers accommodation and other services has ensured that Samalaju’s construction projects are undertaken in an orderly basis without the social problems associated with uncontrolled foreign and local workers.

“CMS’ lead role as the master developer of the planned township is going to be a challenging one as it needs to fast track this township’s development to ensure the workers in Samalaju, whether in the main industrial projects or in the many support industries or service providers, are able to live near their workplace in an attractive green township with all the facilities that are typically found in a township which is expected to reach 40,000 people in 20
years.

“The existence of both these accommodation facilities for workers and the township plans play a strong role in demonstrating to potential investors Sarawak’s commitment to making Samalaju a world class investment destination.”

CMS’ cement and roads maintenance divisions together are expected to remain the biggest contributors to its profit after tax and non-controlling interests (PATNCI) for the next few years and to grow in tandem with Sarawak’s infrastructure development and overall economic growth.

“It is not expected that other divisions or even associates will individually overturn this position although the per cent of CMS’ total PATNCI generated from the two biggest contributors is expected to continue to decline as CMS’ other divisions and associates, including our SCORE related investments both current and envisaged, gain momentum.”

Looking ahead

With regards to the CMS’ future outlook, Curtis told BizHive Weekly that the management team has been actively refocusing the group towards its core competencies in cement, construction materials, construction and road maintenance.

The group has also sought to build up its capabilities in township and property development and to support the growth plans of its two listed strategic investments namely, K&N Kenanga Holdings Bhd and in KKB Engineering Bhd.

“In all cases, this rationalisation is to reinforce our focus on Sarawak and its economic growth led by SCORE’s infrastructure needs and investment opportunities.

“As part of this, CMS has also been building up both its management bandwidth through its professional, meritocratic and customer focused approach and its operational processes and systems so as to ensure these do not hold CMS back.

“Coupled with our strong balance sheet CMS is poised to be, in investors’ eyes, the most logical proxy investment for Sarawak’s accelerating and sustainable long term economic growth.

“Sarawak has a long term growth trajectory in front of it and CMS, having played significant role to date in the state’s growth, wants to continue to support the state in its SCORE led growth and participate in the investment opportunities that will arise.”