By FINTAN NGFriday May 29, 2009
PUTRAJAYA: The worsening external economic situation has prompted a revision of the country’s economic performance to a contraction of between 4% and 5% for this year from a contraction of 1% and a growth of 1% before.
Prime Minister Datuk Seri Najib Abdul Razak said at a press briefing yesterday that the economic climate had deteriorated more than expected.
“In tandem with the new developments, the Government is revising the real gross domestic product performance of Malaysia for the year to a contraction of between 4% and 5% from a contraction of 1% and growth of 1% previously,” he said. “The revision is due to very weak external demand, which plummeted more than we expected.”
According to Najib, private sector investment had also fallen by 26% from a year ago while foreign direct investment was also down by half compared with last year.
On Wednesday, Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz announced that the economy had contracted by 6.2% in the first quarter (Q1) year-on-year.
Najib said the country was in a technical recession, adding that after Q1, the domestic economy was expected to undergo another two quarters of contraction before seeing modest growth in Q4. “We expect next year to be positive,” he said. Najib said the fall in exports (down by 25%) had had a cascading effect on the economy, leading to lower consumption. “Our economic recovery depends on the global economy recovering and that is contingent on the recovery in the US and Europe,” he noted.
On whether the economy had bottomed following the central bank’s release of Q1 economic numbers, Najib said that would depend very much on external figures, adding that any further revision of the country’s economic forecast would also depend on further developments in the external environment.
Bank Islam Malaysia Bhd senior economist Azrul Azwar told StarBiz the revision meant that the first three quarters of the year would be “really bloody”. “I’m quite surprised by the sharp downgrade in the outlook. My forecast was for a contraction of between 3% and 4%,” Azrul said, noting that the International Monetary Fund had forecast Malaysia’s economy to contract 3.5%.
Azrul said there would be some improvement in Q3 when the pace of contractions was expected to be smaller. CIMB Investment Bank Bhd economic research head Lee Heng Guie said his forecast for the year was unchanged at minus 3%.
Friday, May 29, 2009
Thursday, May 28, 2009
Economy shrinks 6.2pc, but Malaysia says recovery in sight
BT By Rupa Damodaran Published: 2009/05/28
THE Malaysian economy shrank 6.2 per cent in the first three months of the year, its first quarterly drop since 2001, but Bank Negara Malaysia (BNM) maintained that a recovery is due towards the year-end.The contraction was worse than the negative 3.5 per cent that economists expected, although BNM said it was within its expectations."Export demand continues to be weak and the environment is still challenging. Despite early signs of improvement, the second quarter will be similar to the first," BNM governor Tan Sri Dr Zeti Akhtar Aziz said at a media briefing in Kuala Lumpur yesterday.
Prime Minister Datuk Seri Najib Razak, who is also the Finance Minister, will announce the revised 2009 gross domestic product (GDP) forecast for Malaysia today.The current official forecast ranges from a 1 per cent growth to a 1 per cent contraction.Zeti said there was still a lot of uncertainty and the extent of Malaysia's recovery would depend on external conditions as well as a positive local environment.Malaysia has announced plans to spend a total of RM67 billion to stimulate the economy, while the central bank has cut the key interest rate aggressively.Economists are hopeful that similar measures by other countries around the world may hasten a global economic recovery.
Zeti said the first-quarter contraction was contributed largely by factories running down their existing stocks rather than cranking up production.Had it not been for a strong diversified domestic economy, the contraction would have been worse.Asked if Malaysia was already in a recession, Zeti said it was more constructive to see if Malaysia could come out of the economic downturn."We are not in a financial crisis, while the household and business sectors are not over-leveraged."We also have stability in the labour market, commodities market and stock market, which together with the decline in inflation will improve purchasing power, plus the measures (in place) will support the prospects for a positive growth into the final quarter and into 2010."
THE Malaysian economy shrank 6.2 per cent in the first three months of the year, its first quarterly drop since 2001, but Bank Negara Malaysia (BNM) maintained that a recovery is due towards the year-end.The contraction was worse than the negative 3.5 per cent that economists expected, although BNM said it was within its expectations."Export demand continues to be weak and the environment is still challenging. Despite early signs of improvement, the second quarter will be similar to the first," BNM governor Tan Sri Dr Zeti Akhtar Aziz said at a media briefing in Kuala Lumpur yesterday.
Prime Minister Datuk Seri Najib Razak, who is also the Finance Minister, will announce the revised 2009 gross domestic product (GDP) forecast for Malaysia today.The current official forecast ranges from a 1 per cent growth to a 1 per cent contraction.Zeti said there was still a lot of uncertainty and the extent of Malaysia's recovery would depend on external conditions as well as a positive local environment.Malaysia has announced plans to spend a total of RM67 billion to stimulate the economy, while the central bank has cut the key interest rate aggressively.Economists are hopeful that similar measures by other countries around the world may hasten a global economic recovery.
Zeti said the first-quarter contraction was contributed largely by factories running down their existing stocks rather than cranking up production.Had it not been for a strong diversified domestic economy, the contraction would have been worse.Asked if Malaysia was already in a recession, Zeti said it was more constructive to see if Malaysia could come out of the economic downturn."We are not in a financial crisis, while the household and business sectors are not over-leveraged."We also have stability in the labour market, commodities market and stock market, which together with the decline in inflation will improve purchasing power, plus the measures (in place) will support the prospects for a positive growth into the final quarter and into 2010."
Wednesday, May 27, 2009
IJM adds most in 2 weeks
IJM adds most in 2 weeks
Published: 2009/05/27
IJM Corp, Malaysia’s second-biggest builder, climbed the most in two weeks in Kuala Lumpur trading after plans for a bonus share issue and a CIMB Investment Bank Bhd report that said it may win two projects this year.The shares added 1.8 per cent to RM5.80 at 11.14 am on the Malaysian stock exchange, after rising as much as 4.4 per cent, the biggest gain since May 12.
IJM, which yesterday announced the plan to distribute two bonus shares for each five held, may win two contracts valued at a combined RM2 billion (US$573 million) by the end of the year, according to Sharizan Rosely, an analyst at CIMB. The bonus plan is “a timely liquidity-enhancing move,” while the announcement on the new projects came as “a nice surprise to us,” Sharizan said in a report today after an analyst briefing. CIMB kept a “trading buy” rating on IJM.
IJM Chief Executive Officer Krishnan Tan couldn’t be immediately reached on his mobile phone for comment.IJM’s bonus announcement came after the Selangor, Malaysia- based company said profit fell 54 per cent to RM53.3 millionin the three months ended March 31. IJM’s fiscal fourth- quarter profit matched expectations, according to CIMB, Credit Suisse Group AG and Deutsche Bank AG.
Order Book
IJM would surpass its order-book target of RM2.4 billion this year should the company win the projects, Danny Goh, an analyst at Credit Suisse, wrote in a report today.Goh kept an “outperform” call on IJM shares, his top pick in the Malaysian construction industry. Goh upgraded his net income forecast for the company by 14 per cent for fiscal year 2011, and raised the stock’s target price to RM7.00 from RM5.08.“IJM’s large construction capacities and solid track record put it in a favorable position to enhance its order book,” Aun-Ling Chia, an analyst at Deutsche Bank, wrote in a report today, maintaining an “outperform” rating on the stock. Every additional RM1 billion contract would boost IJM’s net income by between 3.6 per cent and 5.5 per cent next fiscal year, Chia said. - Bloomberg
Published: 2009/05/27
IJM Corp, Malaysia’s second-biggest builder, climbed the most in two weeks in Kuala Lumpur trading after plans for a bonus share issue and a CIMB Investment Bank Bhd report that said it may win two projects this year.The shares added 1.8 per cent to RM5.80 at 11.14 am on the Malaysian stock exchange, after rising as much as 4.4 per cent, the biggest gain since May 12.
IJM, which yesterday announced the plan to distribute two bonus shares for each five held, may win two contracts valued at a combined RM2 billion (US$573 million) by the end of the year, according to Sharizan Rosely, an analyst at CIMB. The bonus plan is “a timely liquidity-enhancing move,” while the announcement on the new projects came as “a nice surprise to us,” Sharizan said in a report today after an analyst briefing. CIMB kept a “trading buy” rating on IJM.
IJM Chief Executive Officer Krishnan Tan couldn’t be immediately reached on his mobile phone for comment.IJM’s bonus announcement came after the Selangor, Malaysia- based company said profit fell 54 per cent to RM53.3 millionin the three months ended March 31. IJM’s fiscal fourth- quarter profit matched expectations, according to CIMB, Credit Suisse Group AG and Deutsche Bank AG.
Order Book
IJM would surpass its order-book target of RM2.4 billion this year should the company win the projects, Danny Goh, an analyst at Credit Suisse, wrote in a report today.Goh kept an “outperform” call on IJM shares, his top pick in the Malaysian construction industry. Goh upgraded his net income forecast for the company by 14 per cent for fiscal year 2011, and raised the stock’s target price to RM7.00 from RM5.08.“IJM’s large construction capacities and solid track record put it in a favorable position to enhance its order book,” Aun-Ling Chia, an analyst at Deutsche Bank, wrote in a report today, maintaining an “outperform” rating on the stock. Every additional RM1 billion contract would boost IJM’s net income by between 3.6 per cent and 5.5 per cent next fiscal year, Chia said. - Bloomberg
Sunway in Abu Dhabi
The Star 27 May 2009
PETALING JAYA: Sunway Holdings Bhd’s 75.1% owned unit in Abu Dhabi was awarded a sub-contract worth RM326mil for the supply, delivery, installation, testing and commissioning of mechanical, electrical and plumbing works at the Arzanah development in Abu Dhabi.
The sub-contract was awarded by Silver Coast-Sunway Innopave joint venture.
The proposed project was targeted to be completed on Oct 31, 2010.
PETALING JAYA: Sunway Holdings Bhd’s 75.1% owned unit in Abu Dhabi was awarded a sub-contract worth RM326mil for the supply, delivery, installation, testing and commissioning of mechanical, electrical and plumbing works at the Arzanah development in Abu Dhabi.
The sub-contract was awarded by Silver Coast-Sunway Innopave joint venture.
The proposed project was targeted to be completed on Oct 31, 2010.
Tuesday, May 26, 2009
Pahang-Selangor tunnel project sign of improving contract flows
Tuesday May 26, 2009
Analysts: Pahang-Selangor tunnel project sign of improving contract flows
By YVONNE TAN
PETALING JAYA: The construction of the 44.6km tunnel to channel raw water from Pahang to Selangor, which will start on June 1, is a significant signal that contract flows are improving, analysts said. “We think this is a good development and it should trigger the award of contracts for the remaining packages in the entire water transfer project,” AmResearch senior analyst Mak Hoy Ken said. “I think we can all heave a sigh of relief that this part of the project is finally underway. It signals that the current government under the new administration is pro active,” Kenanga head of research Yeonzon Yeow told StarBiz yesterday.
A signing ceremony to formalise the award for the construction of the RM1.3bil tunnel was held yesterday between the parties involved. It was witnessed by Energy, Green Technology and Water Minister Datuk Peter Chin Fah Kui.
The main contractor for this project is a consortium in which Japanese contractors Shimizu Corp and Nishimatsu Construction Co Ltd each has an interest of 30% – a majority of 60% – while IJM Corp Bhd and UEM Builders Bhd have 20% each.
It is understood that every party has seconded the relevant staff to a project management team, which will then manage the project collectively.
The tunnel project, which is aimed at meeting the needs of water consumers in Selangor, Kuala Lumpur and Putrajaya until 2025, is estimated to have an overall cost of about RM3.9bil. The RM1.3bil is the first of four phases in the RM3.9bil tunnel project. Besides the tunnel project, there are other works involved in the entire water transfer project, which is estimated to have a cost of about RM8bil. The remaining contracts have not been awarded but it is understood that interested parties have already been pre-qualified for the remaining work packages. When contacted, a UEM Builders Bhd spokesman said the company was “considering” pursuing the other packages in the entire project but did not elaborate.
Kenanga’s Yeow said yesterday’s signing between the parties would serve as a “benchmark” for other key government projects to be sped up. “It bodes well for the economy because then, domestic spending is able to compensate for weaker export sales which is what the Government intended in the first place to counter a major slowdown in economic growth,” he said.
The bulk of the tunnel project cost will be financed through a loan from the Japan International Corp Agency (JICA) while the rest will be funded by a federal government grant.
Once the tunnel is completed, Selangor would have to pay RM80mil a year to the Pahang government for water.
Analysts: Pahang-Selangor tunnel project sign of improving contract flows
By YVONNE TAN
PETALING JAYA: The construction of the 44.6km tunnel to channel raw water from Pahang to Selangor, which will start on June 1, is a significant signal that contract flows are improving, analysts said. “We think this is a good development and it should trigger the award of contracts for the remaining packages in the entire water transfer project,” AmResearch senior analyst Mak Hoy Ken said. “I think we can all heave a sigh of relief that this part of the project is finally underway. It signals that the current government under the new administration is pro active,” Kenanga head of research Yeonzon Yeow told StarBiz yesterday.
A signing ceremony to formalise the award for the construction of the RM1.3bil tunnel was held yesterday between the parties involved. It was witnessed by Energy, Green Technology and Water Minister Datuk Peter Chin Fah Kui.
The main contractor for this project is a consortium in which Japanese contractors Shimizu Corp and Nishimatsu Construction Co Ltd each has an interest of 30% – a majority of 60% – while IJM Corp Bhd and UEM Builders Bhd have 20% each.
It is understood that every party has seconded the relevant staff to a project management team, which will then manage the project collectively.
The tunnel project, which is aimed at meeting the needs of water consumers in Selangor, Kuala Lumpur and Putrajaya until 2025, is estimated to have an overall cost of about RM3.9bil. The RM1.3bil is the first of four phases in the RM3.9bil tunnel project. Besides the tunnel project, there are other works involved in the entire water transfer project, which is estimated to have a cost of about RM8bil. The remaining contracts have not been awarded but it is understood that interested parties have already been pre-qualified for the remaining work packages. When contacted, a UEM Builders Bhd spokesman said the company was “considering” pursuing the other packages in the entire project but did not elaborate.
Kenanga’s Yeow said yesterday’s signing between the parties would serve as a “benchmark” for other key government projects to be sped up. “It bodes well for the economy because then, domestic spending is able to compensate for weaker export sales which is what the Government intended in the first place to counter a major slowdown in economic growth,” he said.
The bulk of the tunnel project cost will be financed through a loan from the Japan International Corp Agency (JICA) while the rest will be funded by a federal government grant.
Once the tunnel is completed, Selangor would have to pay RM80mil a year to the Pahang government for water.
Tuesday, May 12, 2009
RM5b rail project on drawing board
By Sharen Kaur Published: 2009/05/12
Global Rail Sdn Bhd and its partner from China are working on a RM5 billion project to lay 250km of parallel railway lines in southern Peninsular Malaysia.
The proposal for the double-track lines, connecting Gemas and Johor Baru, will be submitted to the Ministry of Finance and Transport Ministry by early June, Global Rail managing director Fan Boon Heng told Business Times.
Its partner is China Infraglobe Consortium, a state agency under the Central Committee in Beijing.
The rail project will be a Private Finance Initiative, where the developers will arrange funding, and it will also include a plan by China Infraglobe to invest in mineral processing and metal production in Johor.
Global Rail is part of an international team of specialists undertaking a detailed development and investment study for China Infraglobe.
The Chinese company wants to set up an industrial complex in Johor to process the mineral and for downstream metal production with the required logistics infrastructure.
The proposed investment by China Infraglobe is related to the processing of minerals sourced in Peninsular Malaysia with electrified rapid rail freight, connecting the southern ports to the complex, Fan said.
"A proposal on the plan by China Infraglobe will also be submitted to the Chinese government early next month for approval," Fan told Business Times in an interview.
China Infraglobe is the implementation arm of the Byzantium China International Investment Consortium, both of which are extra-jurisdictional agencies under the Central Committee in Beijing.
"Our aim is to provide a solution to link up to Iskandar Malaysia, which is fast developing. There is a single track up to Johor currently but that needs to be upgraded. Furthermore, the government has indicated the continuation of the double tracks from Gemas to Johor," Fan said.
The Gemas-Johor Baru double-tracking project will benefit Keretapi Tanah Melayu Bhd as it will be able to extend its commuter services to Johor, instead of making its last stop in Seremban.
India's national railway firm, Ircon International Ltd, is already working on a RM3.45 billion contract to build 100km of electrified double-tracks from Seremban to Gemas.
Ircon's design-and-build contract is fully funded by the government and will be implemented in four years.
Blogger's Note: So it will be double investment by the China firm - one in the rail line, and another in the industrial complex. The PFI scheme, I believe will be like the original proposal by MMC-Gamuda for Ipoh-Padang Besar line. KTMB is ever willing to pay for the lease on the new double track (tic).
Global Rail Sdn Bhd and its partner from China are working on a RM5 billion project to lay 250km of parallel railway lines in southern Peninsular Malaysia.
The proposal for the double-track lines, connecting Gemas and Johor Baru, will be submitted to the Ministry of Finance and Transport Ministry by early June, Global Rail managing director Fan Boon Heng told Business Times.
Its partner is China Infraglobe Consortium, a state agency under the Central Committee in Beijing.
The rail project will be a Private Finance Initiative, where the developers will arrange funding, and it will also include a plan by China Infraglobe to invest in mineral processing and metal production in Johor.
Global Rail is part of an international team of specialists undertaking a detailed development and investment study for China Infraglobe.
The Chinese company wants to set up an industrial complex in Johor to process the mineral and for downstream metal production with the required logistics infrastructure.
The proposed investment by China Infraglobe is related to the processing of minerals sourced in Peninsular Malaysia with electrified rapid rail freight, connecting the southern ports to the complex, Fan said.
"A proposal on the plan by China Infraglobe will also be submitted to the Chinese government early next month for approval," Fan told Business Times in an interview.
China Infraglobe is the implementation arm of the Byzantium China International Investment Consortium, both of which are extra-jurisdictional agencies under the Central Committee in Beijing.
"Our aim is to provide a solution to link up to Iskandar Malaysia, which is fast developing. There is a single track up to Johor currently but that needs to be upgraded. Furthermore, the government has indicated the continuation of the double tracks from Gemas to Johor," Fan said.
The Gemas-Johor Baru double-tracking project will benefit Keretapi Tanah Melayu Bhd as it will be able to extend its commuter services to Johor, instead of making its last stop in Seremban.
India's national railway firm, Ircon International Ltd, is already working on a RM3.45 billion contract to build 100km of electrified double-tracks from Seremban to Gemas.
Ircon's design-and-build contract is fully funded by the government and will be implemented in four years.
Blogger's Note: So it will be double investment by the China firm - one in the rail line, and another in the industrial complex. The PFI scheme, I believe will be like the original proposal by MMC-Gamuda for Ipoh-Padang Besar line. KTMB is ever willing to pay for the lease on the new double track (tic).
Tuesday, May 5, 2009
Major construction projects awaiting government decision
4/5/2009 The Star
Edited
THERE is urgency for a heightened pace of construction works flowing to keep at least one economic component pumping hard. With a new Cabinet line-up and by-elections (almost) out-of-the-way, we anticipate a refocus on development priorities.
Of the RM7bil first fiscal stimulus unveiled in November, only RM2.4bil worth of projects was awarded as at April 17. Of this, RM350mil has been spent; the balance is still “work-in-progress”.
Plans are for a total RM5.2bil worth of projects to be awarded by June, and a full roll-out of RM7bil (38,000 projects) by August. Of the RM7bil first fiscal stimulus, we estimate the construction component to be RM4.6bil.
As for the RM60bil mini-Budget unveiled in March, RM15bil is fiscal allocation (RM10bil development, RM5bil operating), direct from the government’s coffers. The RM60bil mini-Budget offers RM11bil worth of works; the largest being the RM2bil LCCT, KLIA.
The 9MP, too, is not forgotten. Of the RM230bil 9MP allocation for development for 2006-2010, only RM119bil has been spent as at end-2008, implying a potential RM111bil spending over 2009-2010 assuming the RM230bil is maintained.
For 2009, government’s gross development spending was projected at RM56.7bil (2008: RM42.8bil) before imputing the stimulus allocations. Including the second fiscal stimulus package, this would reach RM60bil in 2010.
We expect a heightened pace of construction tenders and awards from mid-2009. Major projects awaiting decisions are the Pahang-Selangor water transfer (decided oredi May 2009, Shimizu-Nishimatsu-IJM-UEM consortium awarded the job - Ed) and Klang Valley LRT system. The government has clearly no problem in fund raising, without the distraction of a banking crisis, as in 1998.
Year-to-date, RM30.5bil worth of MGS-GIS has been issued, out of a total RM95bil estimated for 2009. Of the RM95bil, RM42bil is for refinancing while the balance RM53bil is new financing.
The RM30.5bil issued is already more than half of the official projected budget deficit of RM53.8bil for 2009. This should be sufficient for the immediate roll-out of construction packages.
More focus on east Malaysia
Higher allocations under the 9MP and second fiscal stimulus, and the new Cabinet line-up imply “urgency” for more infrastructure development in Sabah and Sarawak.
Of the RM10bil development allocation under the RM60bil mini-Budget, Sarawak has the highest allocation of RM1.2bil while Sabah’s allocation was the sixth largest. Sarawak Corridor of Renewable Energy (Score) and Sabah Development Corridor remain very relevant and we expect more construction works in Sabah and Sarawak.
We expect more positive news flow benefiting construction by mid-2009, with more mid-sized contracts of less than RM500mil each to lead the momentum for construction.
Top on the list of potential beneficiaries are contractors with long experience, excellent delivery track records and strong balance sheets to carry the weight of a turnkey contractor.
Our top picks for contractors of mid-sized projects are WCT and IJM Corp, which we upgraded to “buy” last week. Increasing momentum of works at Sarawak should benefit home-grown contractors like Hock Seng Lee (HSL) and Naim Cendera.We expect HSL, (outstanding order book of RM1.27bil), to record strong earnings growth in 2009 (+>20% year-on-year), while further job wins should sustain earnings into 2010.We upgrade HSL to a “buy”.
We also expect Loh & Loh to gain from water- and energy-related works under Score.
WCT and IJM Corp, which have built up good track records, could benefit in Sabah.
Gamuda remains known for its construction ability in mega projects – SSP3 in 1999 and SMART in 2002 - and we think Gamuda may play a lead role in the Klang Valley LRT works.
However, it is a little early to review our “hold” call on the stock.
Our TP is raised after removing a 20% discount to our unchanged RNAV of RM2.50/sh.
Edited
THERE is urgency for a heightened pace of construction works flowing to keep at least one economic component pumping hard. With a new Cabinet line-up and by-elections (almost) out-of-the-way, we anticipate a refocus on development priorities.
Of the RM7bil first fiscal stimulus unveiled in November, only RM2.4bil worth of projects was awarded as at April 17. Of this, RM350mil has been spent; the balance is still “work-in-progress”.
Plans are for a total RM5.2bil worth of projects to be awarded by June, and a full roll-out of RM7bil (38,000 projects) by August. Of the RM7bil first fiscal stimulus, we estimate the construction component to be RM4.6bil.
As for the RM60bil mini-Budget unveiled in March, RM15bil is fiscal allocation (RM10bil development, RM5bil operating), direct from the government’s coffers. The RM60bil mini-Budget offers RM11bil worth of works; the largest being the RM2bil LCCT, KLIA.
The 9MP, too, is not forgotten. Of the RM230bil 9MP allocation for development for 2006-2010, only RM119bil has been spent as at end-2008, implying a potential RM111bil spending over 2009-2010 assuming the RM230bil is maintained.
For 2009, government’s gross development spending was projected at RM56.7bil (2008: RM42.8bil) before imputing the stimulus allocations. Including the second fiscal stimulus package, this would reach RM60bil in 2010.
We expect a heightened pace of construction tenders and awards from mid-2009. Major projects awaiting decisions are the Pahang-Selangor water transfer (decided oredi May 2009, Shimizu-Nishimatsu-IJM-UEM consortium awarded the job - Ed) and Klang Valley LRT system. The government has clearly no problem in fund raising, without the distraction of a banking crisis, as in 1998.
Year-to-date, RM30.5bil worth of MGS-GIS has been issued, out of a total RM95bil estimated for 2009. Of the RM95bil, RM42bil is for refinancing while the balance RM53bil is new financing.
The RM30.5bil issued is already more than half of the official projected budget deficit of RM53.8bil for 2009. This should be sufficient for the immediate roll-out of construction packages.
More focus on east Malaysia
Higher allocations under the 9MP and second fiscal stimulus, and the new Cabinet line-up imply “urgency” for more infrastructure development in Sabah and Sarawak.
Of the RM10bil development allocation under the RM60bil mini-Budget, Sarawak has the highest allocation of RM1.2bil while Sabah’s allocation was the sixth largest. Sarawak Corridor of Renewable Energy (Score) and Sabah Development Corridor remain very relevant and we expect more construction works in Sabah and Sarawak.
We expect more positive news flow benefiting construction by mid-2009, with more mid-sized contracts of less than RM500mil each to lead the momentum for construction.
Top on the list of potential beneficiaries are contractors with long experience, excellent delivery track records and strong balance sheets to carry the weight of a turnkey contractor.
Our top picks for contractors of mid-sized projects are WCT and IJM Corp, which we upgraded to “buy” last week. Increasing momentum of works at Sarawak should benefit home-grown contractors like Hock Seng Lee (HSL) and Naim Cendera.We expect HSL, (outstanding order book of RM1.27bil), to record strong earnings growth in 2009 (+>20% year-on-year), while further job wins should sustain earnings into 2010.We upgrade HSL to a “buy”.
We also expect Loh & Loh to gain from water- and energy-related works under Score.
WCT and IJM Corp, which have built up good track records, could benefit in Sabah.
Gamuda remains known for its construction ability in mega projects – SSP3 in 1999 and SMART in 2002 - and we think Gamuda may play a lead role in the Klang Valley LRT works.
However, it is a little early to review our “hold” call on the stock.
Our TP is raised after removing a 20% discount to our unchanged RNAV of RM2.50/sh.
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