KUCHING: The local construction sector will witness tough competition as more contracts will be awarded on an open tender basis this year as greater emphasis will be placed on infrastructure development in East Malaysia, particularly Sarawak.
BOOST FOR SARAWAK: Prime Minister Datuk Seri Najib Tun Razak (centre) witnesses a ceremony along with Liu Zhenya (third left), president of State Grid Corporation of China, as Shahrol Halmi (second right), CEO of 1Malaysia Development Bhd (1MDB), exchanges agreement documents with Du Zhingang, chief economist of State Grid Coorporation of China, in Kuala Lumpur on Jan 11. Also seen is Sarawak Chief Minister Pehin Sri Abdul Taib Mahmud (right). Malaysia inked a US$11 billion deal with a Chinese state-linked firm to develop projects in Sarawak. — AFP file photo
OSK Research Sdn Bhd (OSK Research) in its research report highlighted that four sector themes are likely to emerge as mainly less than RM500 million worth projects and midsized projects of between RM500 million to RM999 million are expected to be awarded this year.
Tracking the construction jobs announced on Bursa Malaysia Bhd, the RM10.5 billion in domestic contracts announced in 2009 stood at an average value per job of RM191 million, it pointed out.
Further, likely on the line, the pump priming will remain centred on smaller sized jobs as more projects can be implemented, thus benefiting a larger pool of contractors and their approvals would be faster rather than larger sized jobs. The research firm believed the key beneficiaries would be smaller sized contractors.
While the market has high expectations concerning the award of mega projects, only a few of them will be materialise this year. Award momentum for the Low Cost Carrier Terminal (LCCT) appeared to be picking up, with Gadang Holdings yesterday securing the earthworks package 2 (EW2) which worth RM291 million, it revealed.
To recap, earthworks package 1 (EW1) worth RM363 million was awarded late last year to WCT Bhd (WCT). It was highlighted that the front runners for the LCCT runway (RM400- 500 million) were Gamuda Bhd (Gamuda) and WCT given their track records with Doha Airport.
On the other hand, East Malaysia has the highest number of poor households.
The research house felt that the current administration of the government needed to ensure greater development within East Malaysia as these states played an important role during the Barisan Nasional 2008 general election win.
Moving ahead, Budget 2010 saw a RM2.3 billion allocation for infrastructure upgrades in rural areas, most of which are centred on East Malaysia.
The best way to play this theme was via Sarawakbased contractors as the state was expected to hold its elections by end-2010/ early-2011, which in itself provided strong “political incentive” to ensure that projects rolled out before the polls, said the research firm.
Recently, China-owned State Grid Corp of China signed an agreement with 1Malaysia Development Bhd to invest in projects within SCORE, which could create as much as US$11 billion in economic value. The key beneficiaries are Cahya Mata Sarawak, Hock Seng Lee and Naim Holdings.
Despite all the factors, OSK Research remained positive on the rating of the construction sector as there would be more positive news flow in the coming months. Its top picks were Mudajaya with the target price (TP) of RM6.15 accompanied by WCT with TP of RM3.30 and Naim Holdings at TP: RM3.93.