Construction works to pick up in the latter half of the year

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MAIN BENEFICIARY: In particular, UOB Kay Hian highlights East Malaysia as the main beneficiary of rural infrastructure works.

KUCHING: Although construction activities have not picked up in the first half of the year (1H11) with only a few major contracts awarded, the sector is expected to be more vibrant going forward as most of the civil and infrastructure projects tendered out in 1H11 should be awarded in coming months.

UOB Kay Hian (Malaysia) Holdings Sdn Bhd (UOB Kay Hian)  in a report believed Malaysia was in the early stages of a new infrastructure investment cycle as construction players were posting sizeable construction orders which were strong enough to boost revenue growth over the next few years.

“In our view, 65 of the 131 Entry Point Projects (EPPs) represented by 87 initiatives with an investment value of RM170 billion will continue to spur construction activities,” it noted.

“So far, smaller-cap construction companies have been leading the race, with TRC Synergy Bhd (TRC Synergy), Bina Puri Holdings Bhd (Bina Puri) and joint ventures formed by private construction companies enjoying good slices of the cake.

“For example, the new Low Cost Carrier Terminal (LCCT), earthwork packages for KLIA 2, Terminal Building 1 of KLIA 2, Main Facilities (Package A) contracts for both LRT lines were all awarded to smaller players like TRC Synergy, Bina Puri, UEM Group Bhd and other private companies.”

In particular, UOB Kay Hian highlighted East Malaysia as the main beneficiary of rural infrastructure works.

“Under Budget 2011, RM2.1 billion is allocated to build and upgrade rural roads in Sabah and Sarawak, and RM2.7 billion for water and electricity supply. Another RM93 million is allocated for Sarawak Corridor of Renewable Energy development,” it underscored.

“We believe Sarawak-based contractors such as Hock Seng Lee Bhd and Naim Holdings Bhd could benefit from these projects. WCT Bhd will also benefit from the water infrastructure works in Sabah.”

In addition, the research firm noted that peninsula-based small-cap contractors such as TRC Synergy, Encorp Bhd and Bina Puri would also benefit as they possessed state-level licences which enabled them to carry out building jobs and low-cost housing in Sarawak as sub-contractors.

Looking ahead, key news flow anticipated from 2H11 onwards hinged on the RM43 billion Mass Raid Transit (MRT) construction works to be awarded in 4Q11 (elevated portion) and 1Q12 (tunnelling portion), added UOB Kay Hian.

Besides the MRT other notable projects include the RM26 bilion Kuala Lumpur International Financial District, RM10 billion mixed property development of the government’s 3,000-acre land by the Employees Provident Fund (to be completed by 2025) and the river rehabilitation project worth RM10 billion.

To recap, the Economic Planning Unit had announced on June 8 that it gathered a total committed investment of RM40 billion from various public and private partnership (PPP) projects, surpassing the earlier target of RM30 billion for this year.

“We understand these investments are mainly poured into the construction of universities and highways, which will create more construction jobs,” the firm concluded.