Construction Weekly Review: 10th – 16th November 2008

November 24, 2008 at 3:36 am Leave a comment

The Construction Weekly Review: 10th – 16th November 2008

• Last week ended mixed for construction sector.
Price performance of construction stocks under coverage ended mixed last week. Gamuda and Sunway Holdings were up but IJM Corporation was down sharply by 12.8% as the declining crude palm oil price
continued to weigh on the prospect of its plantation arm. On notable filings by major shareholders last week, Platinum Investment Management and Employees Provident Fund continued to up their stakes in Gamuda.
• In the news.
Some of the notable news last week includes IJM Corporation having secured more than 90% stake in Industrial Concrete Products (ICP) based on the level of acceptance for its take-over offer as of last Friday. West Coast highway, in which IJM has an indirect interest via its 25% associate Kumpulan Europlus, has reportedly been shelved as it failed to achieve financial close within stipulated timeframe.
Meanwhile, Gamuda and MMC Corporation were sued by one of their sub-contractor for RM102.4m following a contract dispute for the SMART project.
The debacle over the award of Penang second bridge finally came to close following UEM Builders acceptance of a revised offer of RM1.55bn.
Last but not least, there was a false hope for cheaper steel bar import from China following news of removal of export tax on steel products earlier last week. However, as details were revealed later, it only applies
to non-construction steel products.
• Contracts awarded.
New contracts worth RM1.1bn were awarded last week, of which RM0.8bn relates to an overseas monorail job secured by Scomi Engineering.
• What to expect from the results season?
Although steel bars prices have came tumbling down from its peak a few months ago, construction margin is expected to remain thin as other building materials prices have not declined. Last week, WCT and Zelan
announced their 3QFY08 and 2QFY09 results respectively which were below consensus estimate amid thin construction EBIT margin, at mid single digit, still.
• Maintain UNDERWEIGHT on the construction sector.

Share price performance

Price performance of construction stocks under coverage ended mixed last week. Gamuda and Sunway Holdings were up but IJM Corporation was down sharply by 12.8% as the declining crude palm oil price continued to weigh on the prospect of its plantation arm.
Crude palm oil futures for February 2009 delivery was down 9.6% week-on-week from RM1,615 to RM1,460 per tonne.
On notable filings by major shareholders last week, Platinum Investment Management and Employees Provident Fund continued to up their stakes in Gamuda by adding another 7.2m and 7.5m shares. These brought Platinum Investment Management’s and Employees Provident Fund’s stakes up to 8.9% and 5.7% respectively.

Notable construction news

• Based on a news report, a consortium comprising IJM Corporation and Malaysia Allied Health Science Academy College (Mahsa) is tipped to develop a medical city in Kerala once the state government gives its nod. The Kerala State Industrial Development Corporation and Malaysia’s Construction Industry Development Board (CIDB), both parties of the consortium, are engaged in serious talks to ink the agreement for the
RM433m (US$120m) project in Kinalur in Kozhikode City. However, management clarified that while negotiation is underway, it is still at a preliminary stage and nothing is firm yet.
• As of last Friday, IJM Corporation already hold more than 90% stakes in Industrial Concrete Products (ICP) based on the level of acceptance for its take-over offer received. As such, IJM Corporation can now compulsorily acquire the remaining shares in ICP. The listing of ICP will be suspended from 24 November.
• The media reported that the RM3.1bn West Coast highway project has been shelved and might undergo a new tender as terms of the deal could not be finalised within a 15- month time-frame. However, Kumpulan Europlus, which has a 60% stake in the highway concessionaire, clarified that it has not been formally informed by the government and will be seeking clarification on the matter. IJM Corporation has a 25%
stake in Kumpulan Europlus.
• Gamuda is embroiled in a contract dispute with a sub-contractor for the SMART project, which was undertaken on a joint venture basis with MMC Corporation. The sub-contractor, Wayss & Freytag (Malaysia) Sdn Bhd, is now suing Gamuda and MMC for the sum of RM102.4m. Based on announcements to Bursa Malaysia, both Gamuda and MMC opined that they have a good case against the sub-contractor.
• UEM Builders Bhd has on 13 November 2008 accepted the offer from Jambatan Kedua Sdn Bhd to undertake the construction of the superstructure portion of the Penang second bridge following a revision in the contract sum from RM1.3bn to RM1.55bn.
• Construction players were looking forward to cheaper steel bars from China following news of removal of export tax on steel products by China earlier last week. However, as details were revealed towards the later part of last week, the removal of export tax is only for non-construction steel products such as hot-rolled, cold-rolled and other highvalue added steel products. A 10% export tax still applies to steel bar.

New contracts worth RM1.1bn were awarded last week, of which RM0.8bn relates to an
overseas monorail job secured by Scomi Engineering.

Comments:

WCT reported 3QFY08 earnings which were below consensus estimate. 9MFY08 results only accounted for 86.3% of consensus estimate on an annualised basis. Revenue was sharply lower on q-o-q basis by 21.3% mainly due to lower construction revenue as construction progress slow down during the Ramadhan month. Construction EBIT margin has however stabilised at 6.3% as compared to 2QFY08’s 6.2%.
Zelan also reported a disappointing result as net earnings for 6MFY09 account for only 93.2% of consensus estimate on annualised basis. Similar to WCT, revenue was also sharply lower on q-o-q basis by 20.2% mainly due to lower construction revenue.
Construction EBIT margin has remained thin at 5.8% in 2QFY09.

Advertisements

Entry filed under: Business, Finance, Stock Market. Tags: , , , , , , , , , , , , .

Oil & Gas Weekly Review: 10th – 16th November 2008 November 17, 2008 Daily Highlights

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed



%d bloggers like this: