Construction Weekly Review: 1st – 7th December 2008

December 10, 2008 at 8:39 am Leave a comment

· Continued sell down on Gamuda and Muhibbah Engineering.
Although the overall construction sector was largely unchanged, Muhibbah Engineering and Gamuda were major losers last week, with each shedding 14.5% and 8.9% week-on-week respectively. Despite the sell down, major shareholders continued to increase their stakes in
Gamuda and Muhibbah Engineering. Beside these two counters, IJM Corporation also reported increase in the holdings by its major shareholders.
· Project implementation is the key going forward.
While development expenditure allocation of RM51.7bn was announced during the 2009 Budget and another RM7bn was thrown in as part of the economic stabilisation plan, the key now is the implementation. However, news flow on domestic order book replenishment by construction players has been rather thin while implementation hiccups continue to plague the sector.
For example, Sarawak still has not received the RM5bn committed funding from the federal government for infrastructure development. Fate of the West Coast Expressway is still not certain even as the consortium involved is reportedly close to securing the necessary funding.
The government had recently shelved the project after the consortium could not achieve financial close within the stipulated time frame. Industry players will now be looking forward to the implementation of the much awaited Kota Damansara-Cheras LRT project in the capital city.
However, details such as the estimated cost and deadline for the project remain sketchy at this point in time.
· Contracts awarded.
New contracts awarded last week amounted RM276.7m which comprise solely of government jobs. Only time will tell whether this is the sign of more government infrastructure spending in months to come.
· Maintain UNDERWEIGHT.

Although overall construction sector was largely unchanged, Muhibbah Engineering and Gamuda were major losers last week, with each shedding 14.5% and 8.9% week-on-week respectively.
On notable filings by major shareholders last week, Employees Provident Fund bought 0.35m and 0.15m shares in Gamuda and IJM Corporation respectively. Australia-based Platinum Investment also added another 0.25m shares in Gamuda. Lembaga Tabung kept its faith with Muhibbah Engineering by adding another 0.17m shares despite heavy selldown.
We have reclassified Muhibbah Engineering from the oil and gas sector to construction sector.

Project implementation is the key going forward
While development expenditure allocation of RM51.7bn was announced during the 2009 Budget and another RM7bn was thrown in as part of the economic stabilisation plan, the key now is the implementation. However, news flow on domestic order book replenishment by construction players has been rather thin while implementation hiccups continue to plague the sector.
Although Sarawak is expected to benefit significantly from the Sarawak Corridor of Renewable Energy (SCORE), much of the funds for infrastructure development have yet to be disbursed by the federal government. Chang Ngee Hui, adviser to the State Planning Unit in the Chief Minister’s Department, has reported said that the federal government has committed RM5bn under the Ninth Malaysia Plan to build access roads to energy sites and for the part-development of the Similajau Industrial Estate, among others but the state government is still waiting for the funds to be disbursed. In the meantime, the government has reportedly given approval in principle to Tenaga Nasional Bhd (TNB MK, Buy, TP: RM10.20) and Sarawak Energy Bhd (SRWE MK, not rated) to carry out the Bakun Dam and undersea transmission projects.
Although RM3.1bn West Coast Expressway project has recently been shelved and might undergo a new tender as the consortium involved had failed to secure financing in time, Kumpulan Europlus Bhd (KEUR MK, not rated), which has 60% stake in the concession, is close to securing a RM4.5bn loan from a group of banks. However, it is unclear if Kumpulan Europlus will get to keep the highway.
Industry players will now be looking forward to the implementation of the much awaited Kota Damansara-Cheras LRT project in the capital city. Transport Minister Datuk Seri Ong Tee Keat said the 42km LRT project was on the drawing board and expressed confidence that the project could take off in the near future. However, details such as the estimated cost and deadline for the project remain sketchy at this point in time.

Contracts awarded
New contracts awarded last week amounted RM276.7m which comprise solely of government jobs. Only time will tell whether this is the sign of more government infrastructure spending in months to come.

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