KUCHING: HSS Engineers Bhd (HSS) is set to benefit from water projects this year given that the Budget 2019 allocations on this segment.
According to Affin Hwang Investment Bank Bhd (Affin Hwang), the Budget 2019 allocated RM690 million for the implementation of new water-supply projects and the reduction of non-revenue water (NRW), such as water loss due to leakage, theft or meter inaccuracies.
“The government allocated RM590 million in 2019 to build more municipal sewerage treatment plants and network systems to connect households that are still using septic tanks and traditional systems,” the research firm said.
“It is considering raising sewerage tariff rates and implementing combined billing for water and sewerage bills to improve
collection, ensuring the sustainability of the sewerage utility company, Indah Water Konsortium.
“The capital expenditure (capex) expansion for water and sewerage services is positive for HSS, which is the largest local engineering consulting firm in the water and sewerage sectors following its acquisition of SMHB Engineering last year.”
Additionally, HSS has plans to expand its reach into Sarawak as it bids for the state’s water grid project.
“The group has also submitted tenders for water projects in Sabah and Sarawak given the water shortage and as certain rural areas are not connected to the water grid in these states, which remain key concerns for the state governments.
“We gather that the Sarawak state government plans to spend RM7 billion to RM8 billion on the state’s water grid project to draw clean water from the hydroelectric dam reservoirs to supply to rural areas and irrigate agriculture projects.
“Under the project’s first phase, reservoir water will be brought from the Batang Ai hydroelectric dam in southern Sarawak to
Tanjung Manis, one of the growth nodes of the Sarawak Corridor of Renewable Energy in central Sarawak.
“This phase, which has been allocated RM1 billion, will be completed within two years.”
As a leading engineering consultant firm in the water sector, Affin Hwang believed SMHB Engineering, a wholly-owned subsidiary of HSS, is a potential beneficiary of rising capital expenditure (capex) to develop and upgrade water supply and distribution services in Malaysia.
The research firm noted that most states in Malaysia had low capex in the past due to the low consumer water tariff rates that were insufficient to fund the capex, and in some cases were even insufficient to fund the operating expenditure of the state-owned water utility company.
“Hence, it is positive that the Penang and Negeri Sembilan states plan to increase water tariff rates by up to 20 per cent based on the recommendation of the National Water Services Commission (SPAN).”
Affin Hwang further noted that the acquisition of SPLASH’s assets by Pengurusan Air Selangor will also consolidate all the water assets in the state under the control of the Selangor state government effective from April 1, 2019.
“This will support the increase in water tariff to pass on the higher cost of water supply and capex to build new water treatment plants and improve the water distribution network.
“State-owned water utility Pengurusan Air Selangor Sdn Bhd has a capital expenditure plan of RM30 billion over 30 years starting from this year.
“It is crucial that the Selangor water supply be expanded as the water reserve margin in the state is zero per cent. Other states with critical water reserve margins include Kedah (zero per cent), Perlis (one per cent) and Kelantan (5.8 per cent).”
Affin Hwang also highlighted that as the leading engineering consulting firm for railway and road projects in Malaysia, HSS is looking to participate in upcoming tenders.
These included the Iskandar Malaysia Bus Rapid Transit (BRT), Klang Valley Double Tracking (re-tender), Penang LRT, DUKE Phase 2A expressway, Kuching LRT, three paired roads project in Penang and a Philippines highway.
“It also plans to expand into renewable energy (RE) generation projects under the third cycle of the large-scale solar (LSS3) scheme with some partners.”