KUCHING: The construction sector will likely see busy times ahead as contractors have ample opportunities to secure new construction jobs in the foreseeable future, the research arm of TA Securities Holdings Bhd (TA Research) says.
According to TA Research, awards of works packages for KVMRT line two and Pan Borneo highway signify the commencement of largest construction projects in Malaysia.
The research arm expected more news flow in the remaining period of 2016 as more construction jobs and works packages are expected to be awarded.
“These include KVMRT line two, Pan Borneo Highway in Sarawak, LRT line three, West Coast Expressway, Southern Double Track, DASH, SUKE and EKVE,” it said.
TA Research expected listed construction players such as Gamuda Bhd (Gamuda), IJM Corporation Bhd (IJM), WCT Holdings Bhd (WCT), Sunway Construction Group Bhd (Sunway Construction), Bina Puri Holdings Bhd (Bina Puri), Kimlun Corporation Bhd (Kimlun), Gadang Holdings Bhd, Mudajaya Group Bhd (Mudajaya), Ahmad Zaki Resources Bhd, Gabungan AQRS Bhd, WZ Satu Bhd, Hock Seng Lee Bhd (HSL), Zecon Bhd (Zecon), Naim Holdings Bhd (Naim), TRC Synergy Bhd (TRC) to benefit from the rollouts of these mega infrastructure projects.
TA Research noted that in Sarawak, the construction of the RM28.9 billion Pan Borneo Highway has commenced since April 2015 with the kicking-off of the Bintulu-Miri stretch, between Jalan Nyabau and Jalan Bakun junctions.
“Subsequently, the package between Telok Melano and Sematan was awarded. In March 2016, the works packages for the stretches of between Serian roundabout and Pantau junction, and between Bintangor junction and Julau junction and Sibu Airport to Sungai Kua Bridge were awarded to the joint venture (JV) between Zecon and Kimlun, and the JV between HSL and Dhaya Maju Infrastructure (Asia) Sdn Bhd for contract amounts of RM1.5 billion and RM1.7 billion respectively,” it said, adding that the remaining eight work packages are expected to be awarded by November
2016.
The research arm highlighted that potential beneficiaries of the remaining works packages in Sarawak include Gamuda, Naim, Mudajaya, Sunway Construction, Cahya Mata Sarawak Bhd (CMS), Bina Puri, Mitrajaya Holdings Bhd (Mitrajaya), TRC, IJM, WCT, KKB Engineering Bhd, Protasco Bhd, Ikhmas Jaya Group Bhd and Malaysian Resources Corporation Bhd which had prequalified for the tender.
Nevertheless, TA Research was cautiously optimistic that the whole 1,090 kilometre (km) stretch of Pan Borneo in Sarawak could be completed by 2023, given the challenging soil condition along the coastal area of Sarawak.
“Similarly, for phase one of Pan Borneo Highway in Sabah with a length of 706km, the target completion date by 2021 appears optimistic to us.
“Given the project delivery partner (PDP) may need several months of preparation works before works packages could be awarded.
“As such, the contractors may have only a period of about five years to complete the entire stretch under phase one,” the research arm said.
On another note, TA Research pointed out that for comparison purpose, the 772km of North-South Expressway took more than a decade to complete.
“Furthermore, the supporting services for the construction industry in East Malaysia may not be as developed as that in Peninsular Malaysia.
“While the North-South Expressway is mainly built on a new alignment, substantial portion of Pan Borneo Highway involves upgrading of existing trunk roads,” it said.
The research arm added that unlike North-South Expressway whereby the construction works were mainly on green field, the upgrading works on existing roads could be more challenging as it involves utilities relocation, traffic diversion and constrained by flowing traffic.
As for KVMRT, TA Research said that line one is now mainly focused on tracks, systems, electrification, signaling and train testing works.
The research arm noted that it is on track to achieve completion within budgeted cost and scheduled period, which is phase 1 (between Sungai Buloh and Semantan) by end-2016 and overall completion by end-July-2017.
“Due to lengthier underground distance, KVMRT line two has a longer construction period of six years, versus five years in KVMRT line one,” it said.
TA Research expected underground works for KVMRT line two offer better margin than that in KVMRT line one as the tunnel boring machines used in KVMRT line one will be reused in KVMRT line two after refurbishment, having going through the learning curve in KVMRT line one, coupled with higher rate per km run.
The research arm said that after a majority of the contractors for civil works suffered low margin or even to the extent of incurring loss in KVMRT line one, contractors are expected to raise margin and be more conservative in tenders for KVMRT line two to preserve reasonable margins.
“Any further delay in the tender and contract award progress of LRT line three will increase the risk of delay in the overall completion of the project by end-August 2020,” it added.
Overall, TA Research noted that if several mega projects are rollout and implemented concurrent as planned, the local construction industry would probably be experiencing the highest level of construction activities ever in the coming two to three years’ time.
“The sheer amount of these construction works would put a strain on the supply of resources required to carry out the construction works.
“Besides possibly causing delay to the progress of works, any shortages in the resources may lead to costs escalations and erode profit margins,” it said.
The research arm further noted that related building materials players are expected to gain tremendously as well.
It pointed out that among the potential beneficiaries are cement, quarry and concrete products related companies (CMS, Hume Industries Bhd, Lafarge Malaysia Bhd, OKA Corporation Bhd, Tasek Corporation Bhd, IJM, Kimlun, YTL Corporation Bhd, Chin Hin Group Bhd (Chin Hin), DKLS Industries Bhd, Dolmite Corporation Bhd, Quality Concrete Holdings Bhd, Mudajaya, and MTD ACPI Engineering Bhd), companies involve in trading and distribution of construction materials (CMS, Chin Hin, IPMUDA Bhd and Engtex Group Bhd (Engtex)), manufacturers of steel products (Southern Steel Bhd, Malaysia Steel Works (KL) Bhd, Engtex, Ann Joo Resources Bhd, Lysaght Galvanized Steel Bhd)
With the rollouts of several mega projects as mentioned above, the research arm expected the construction industry to be robust in the next five years.
Given the ample opportunities in securing new construction jobs, coupled with sizeable amount of outstanding order books in hand which provide earnings visibility in near to medium term, TA Research upgraded its sector call on the construction from ‘neutral’ to ‘overweight’.