Govt ramping up construction sector

Tuesday April 14, 2009
Govt ramping up construction sector
By IZWAN IDRIS

PETALING JAYA: The construction industry, which saw a dearth of jobs last year, has caught a glimpse of up-coming jobs from the stimulus spending this year.

This will be counter-cyclical in the sense that while the industry shrank last year, it may expand in a year of economic slowdown as the Government ramps up construction to offset negative growth in other sectors.

Analysts sense this impending recovery.

CIMB Research last week said IJM Corp Bhd was eyeing nine major contracts worth at least RM9.4bil in total.Eight are domestic projects. These include
the job to build a hospital in Putrajaya,
two packages involving the Pahang-Selangor interstate water project,
the West Coast Expressway,
the new low-cost carrier terminal in Sepang,
work related to the Penang Second Bridge project and
upcoming contracts to extend the existing two light rail transit (LRT) lines in the Klang Valley.
Contracts to extend the existing two LRT lines in the Klang Valley are among the upcoming projects.

All these contracts are in various stages of negotiations, and tenders for some of these projects are yet to be called. Other companies were also reported to be in the running for some of the projects being targeted by IJM. The prospective IJM job list gave some insight into the value of big domestic construction works that are in the pipeline. Recently, WCT Bhd was reported to be in the process of finalising some RM500mil worth of jobs in Sabah.

There is also talk about a new LRT line being planned to link Kota Damansara and Cheras that is estimated to cost RM30bil. This project, like some of the other upcoming jobs, should attract fierce bidding from the big contractors when it becomes available.

While the prospect of big projects coming in has fuelled investors’ imagination in the past weeks, an analyst at RHB Research Institute has a more sober view of the sector.“Generally, we continue to find it difficult to be positive on the sector over the short term,’’ the firm said in report yesterday. The key reasons for its lack of enthusiasm centred on the argument that the projects planned under the two stimulus packages were mostly small in size. The lack of availability of funds at the right price also remained a major hurdle for most private financing initiatives to take off.

RHB Research said that as focus shifted to rolling out projects under the two stimulus packages, it “believed certain highly anticipated mega projects” under the Ninth Malaysian Plan might be put on the backburner, or postponed to the 10th Malaysia Plan. The firm, however, acknowledged increased investors’ appetite for risk, and had assigned higher target prices for construction stocks under its coverage to reflect this. Fund managers are aware of this mood of recovery. Hence, share prices of the big contractors which have been rising, continued to edge higher yesterday, as they shrugged off concerns that prices of counters like IJM, Gamuda Bhd and Malaysian Resources Corp Bhd (MRCB) might have gone up too fast and too soon.
A key factor in driving up investors’ buying binge in recent weeks was high expectation that the pump-priming agenda of the new administration of Prime Minister Datuk Seri Najib Tun Razak would result in increased big construction job flow in the coming months.

Analysts, however, seem to prefer to wait and see if some of these “highly anticipated” projects materialise first. “We maintain our ‘neutral’ call (on the construction sector) as there is a lack of re-rating catalysts in sight,’’ ECM Libra Investment Research said in an update. “Key risks going forward include below-trend order book replenishment as well as implementation risks.’’
But investors are already betting that companies like IJM, Gamuda, MRCB and WCT will emerge winners.

IJM’s share price climbed six sen to RM4.70 yesterday – its highest level since mid-September last year. The stock has risen 67% since the start of the year, but is still a long way off its peak of RM8.82 reached in February 2007. Shares in Gamuda and MRCB advanced yesterday, with both stocks now chalking up year-to-date gains of 29% and 45% respectively. WCT, whose shares were clobbered in January, has also recovered strongly.