Construction sector continues to grow

05 July 2010 , By Borneo Post Online

The construction sector saw positive growth for the second quarter of 2010 (2Q10) whereby about RM5.4 billion worth of construction jobs were awarded while Sarawak players continued to enjoy strong job flows.

“Contract awards in Sarawak amounted up to RM973 million which was up 73.5 per cent year-on-year (y-o-y),” commented a research analyst from OSK Research Sdn Bhd (OSK Research) when contacted by the Borneo Post yesterday.

“With this in mind, we expect to see strong jobs flow in the state to be fuelled by the upcoming state election, possibly by the end of 2010 or early 2011. We predict that local Sarawakian contractors such as Naim Holdings Bhd and Hock Seng Lee Bhd to be prime beneficiaries.”

In light of this, OSK Research highlighted that domestic jobs for the quarter totalled RM3.4 billion or an increase of 80.1 per cent quarter-on-quarter (q-o-q) and 26.1 per cent y-o-y. This was broadly due to a larger number of jobs being awarded despite the lower average contract size, implementation of private finance initiative (PFI) jobs, and higher contributions from private sector contracts.

On a year-to-date (YTD) basis, domestic jobs totalled RM5.3 billion which was up 23.3 per cent y-o-y. Moving forward, OSK Research expected to witness a q-o-q decline in domestic jobs flows for the next quarter in view of the Ramadan month.

Apart from that, foreign jobs made up 37 per cent or RM2 billion of the total contracts awarded in 2Q10. OSK Research noted that this was mainly driven by the RM1.8 billion Yangshuo-Luzhai Expressway in China awarded to MTD Capital.

Crest Builder Holdings Bhd and Menang Corporation (M) Bhd announced that they had won contracts to build UiTM campuses via PFI. The research house was aware that the seven UiTM campuses have been awarded via PFI, with another five remaining.

The 10th Malaysian Plan (10MP) has identified RM62.7 billion worth of jobs to be implemented via PFI and OSK Research predicted contractors with strong balance sheets as the best candidates to benefit from PFI jobs since the contractor was responsible for securing project financing.

In other news, key corporate developments during the quarter included Putrajaya Holdings Sdn Bhd calling for RM1 billion worth of tenders this year to construct office towers, commercial blocks and residential units.

OSK Research believed that contractors such as WCT Bhd, Sunway Holdings Bhd (Sunway) and Ahmad Zaki Resources Bhd (Ahmad Zaki) stood a good chance to partake in this project, given their positive track record in that region. Also in Putrajaya, the government was mooting to build a new Parliament building amounting to RM800 million.

Some RM1 billion worth of contracts were expected to be tendered out in Iskandar Malaysia (IM) by the end of the year, encompassing retail outlets, hotels and offices. Currently, the key project in IM was the Legoland Theme Park worth between RM700 to RM750 million, for which tenders for two sub-packages have been called but are only restricted to Johor contractors.

In addition to that, the highly anticipated joint venture (JV) between Gamuda Bhd and MMC Corporation Bhd has proposed to the government to construct a RM36 billion mass rapid transit (MRT) system in the Klang Valley. The JV was awaiting Cabinet approval and works were expected to commence early next year.

Nevertheless, the research house remained doubtful that works would kick off soon, given the enormous costs involved in this project on the back of likely protest from opposition parties and pressure from developers to change the proposed alignment of the project.

Unlike previous Malaysia Plans whereby development expenditure was increased, allocation for the current 10MP was sustained at RM230 billion, reducing the physical portion of this expenditure to 60 per cent against 78 per cent in the 9MP. As there was no change in development expenditure allocation between the 9MP and 10MP, OSK Research saw the reduction in physical portion to take a negative impression on the sector.

With that in mind, OSK Research kept a neutral outlook for the construction sector, selecting Sunway and Ahmad Zaki as top picks.