Construction jobs flow to continue


By OSK Research

Overweight (maintain)

The second quarter of 2012 (Q2'12) saw domestic contracts totalling RM5.1bil from jobs from the Klang Valley Mass Rapid Transit Sungai Buloh-Kajang (MRT SBK) line rolling out progressively.

Currently about 77% of the entire track have been awarded out.

We see this fuelling the jobs flow for the remainder of this year, partly boosted by the potential award of the Gemas-Johor Baru electrified double tracking (EDT) project, West Coast Expressway (WCE), as well as Kuala Lumpur Outer Ring Road (KLORR).

We maintain “overweight” on the sector as the flow of contracts to be awarded in the next few months will continue to drive the sector.

Gamuda and KimLun remain our top buys.

The total value of contracts awarded in Q2'12 totalled RM5.4bil, an increase of more than 100% year-on-year. This was boosted by the handing out of packages relating to the KV MRT SBK line.

However, this was down by some 66% quarter-on-quarter as the single largest package in the SBK line, which was the RM8.2bil underground portion was awarded in the previous quarter.

These comprise RM5.1bil in local jobs, with the SBK line making up a sizeable RM3.8bil.

Foreign contracts, on the other hand, contributed the remaining RM313mil. Excluding the SBK line-related jobs, the local jobs amounted to RM1.3bil, a 30.5% decrease year-on-year and 54.7% quarter-on-quarter.

This was due to jobs relating to the Tanjung Bin power plant extension being awarded in Q1'12, as well as a lumpy RM667mil rural water supply project in Sarawak in Q2'11.

Cumulating the two quarters, the first half of 2012 (H1'12) jobs secured by public-listed contractors amounted to RM18.1bil, trumping the total of RM4.8bil registered in H1'11, as contracts from the SBK line continued to be dished out.

Bursa-listed contractors bagged projects worth about RM14bil during this period.

We understand that Gamuda as the joint caretaker of the MRT SBK line together with MMC, 77% of the entire project worth RM20bil has been awarded to public-listed and private contractors, the latest being the V2 and V3 viaduct packages secured by Gadang and Mudajaya on June 29.

We believe the momentum will be sustained in H2'12 as it will continue to be driven by the MRT SBK line.

MMC-Gamuda has called for tenders for 20 packages relating to the remaining viaduct package V8 (Taman Mesra-Kajang), with four out of the eight station packages likely to be awarded in Q3'12.

We expect most of the jobs in respect of the SBK line's outstanding jobs worth RM4.5bil to be awarded by year-end.

Meanwhile, we also expect more news on the 1,400MW gas-fired Prai Power Plant, for which the Energy Commission has shortlisted nine consortiums as potential independent power producers, as well as jobs in the Sarawak Corridor of Renewable Energy (SCORE).

With the 13th general election likely to be held only in late-Q3'12 after the Hari Raya festive season in August, we expect that the ruling Barisan Nasional (BN) coalition will continue to create “feel good” factors to shore up its popularity.

We think this could potentially accelerate the implementation of the country's mega-billion construction projects, especially in SCORE, as we expect the ruling coalition to use contracts to anchor votes from Sabah and Sarawak, whose parliamentary seats make up 54 of the BN's 140 nationwide.

Year-to-date, the number of jobs awarded in Sarawak have almost halved from RM696mil in H1'11 to RM359mil in H1'12. We believe there is a possibility of the Federal Government ramping up its development expenditure for the country's largest state in H2 this year.

While there are some concerns over the possibility of the contracts flow drying up in H2'12, especially post-election, we remain relatively bullish in anticipation of developments relating to the RM7bil WCE and the RM8bil Gemas-Johor Baru EDT project, which, according to Gamuda, is likely to be awarded by Q3'12.

Apart from that, the RM1.7bil KLORR may potentially be revived as we gather from sources that AZRB is close to finalising the concession agreement.

Moving into 2013, we understand that some of the major projects include the RM1.5bil Kinrara-Damansara highway and underground portion of the MRT Line 2 and Line 3, of which the award will likely materialise in H2'13.

With the 17 eurozone countries, including Germany, having agreed to allow countries that have made economic reforms as required by the EU authorities to tap into the European rescue funds without submitting to stringent bailout programmes, we believe the global equity markets may finally come out of the woods and head for new highs this year.

Article extracted from StarBiz's Analyst Reports, (Wednesday July 4, 2012). For the full article, click here.