Construction Weekly Review: 8th – 14th December 2008

December 15, 2008 at 7:19 am Leave a comment

· Gamuda and Muhibbah Engineering staged a rebound
Following a sharp fall the week before, Gamuda and Muhibbah Engineering rebounded significantly last week. Both counters were the major gainers with each recovering 20.1% and 9.1% week-on-week respectively.
· Bad news all over
The Bakun dam project faces another round of cost overrun as Impsa Malaysia, which supplies four out of the eight turbines, made another additional claim of RM80m due to delays. In view of cost overrun issues and poor capital market conditions, it is not a surprise that Tenaga Nasional Bhd (TNB MK, Buy, TP: RM8.20) and Sarawak Energy Bhd (SRWE MK, not rated) are reportedly looking to lease the Bakun hydroelectric dam from the government-owned Sarawak Hidro Sdn Bhd instead of owning it outright.
Another mega project, the Pahang-Selangor Water Transfer project also hit a brick wall due to a dispute between the Malaysian government and Japan International Cooperation Agency (JICA) over the award of the tunnelling job worth RM3bn.
Following an earlier announcement of the non-renewal of the employment contract of its Chief Executive Officer, Albert Chang, Zelan Bhd (ZELN MK, not rated) announced last Thursday the resignation of Albert Chang as well as another founding member Lam Kar Keong. Chief operating
officer Koo Boo Seong also resigned as executive director while Yoong Nim Chee, who is currently the director of corporate affairs of MMC Corp Bhd (MMC MK, not rated), was made Zelan’s executive director. With the absence of the two driving forces behind the recent growth of Zelan, the future prospects of company will be clouded in uncertainty. Share price of Zelan has shed 58.5% since news of the non-renewal of Albert Chang’s employment contract came out in mid November.
· Contracts awarded
No notable new contracts awarded were last week.
· Maintain UNDERWEIGHT

KLSE Construction Index rose by 5.9% last week and the main gainer was Gamuda which was up 20.1%. There were however no filings by major shareholders of Gamuda last week. Gamuda will be holding its annual general meeting next week on 16 December and shareholders may again question Datuk Lin Yun Ling’s commitment to continue leading the construction giant.
Muhibbah Engineering was the other major gainer with 9.1% rise week-on-week. Lembaga Tabung Haji continued to show faith in this construction and oil & gas player by buying another 0.31m shares. It owns 10.3% of Muhibbah as of last Friday.

Notable Construction News

– Sarawak Hidro Sdn Bhd, the owner of Bakun hydroelectric dam, has been slapped with an additional claim amounting to RM80m from Impsa Malaysia, the supplier of four of the eight turbines that will be installed in the 2,400MW hydro plant. Sources said that Impsa Malaysia put in additional claims a few weeks ago and if approved, the total claims for the turbine job, initially awarded at RM460m, will amount to RM225m. The civil and electro-mechanical works for Bakun were originally supposed to have been done at RM4bn. With the additional claims mounting due to delays, the cost is expected to surpass RM5.5bn. In view of cost overrun issues and poor capital market conditions, it is not a surprise that Tenaga Nasional Bhd and Sarawak Energy Bhd are reportedly looking to lease the Bakun hydroelectric dam from the government-owned Sarawak Hidro Sdn Bhd instead of owning it outright.
– There were talks of a dispute between the Malaysian government and Japan International Cooperation Agency (JICA) over a loan agreement for the RM11bn water transfer project between Pahang and Selangor although this was refuted by the Energy, Water and Communications Minister Datuk Shaziman Abu Mansor. The 45km tunnel job worth RM3bn was reportedly awarded to a consortium comprising privately-owned HRA Teguh Sdn Bhd and Taisei Corp but JICA want to give it to the Shimizu-IJM Corp- UEM Group consortium, which submitted the lowest bid.
– Zelan Bhd announced the resignation of two of its founding members Albert Chang and Lam Kar Keong as directors of the company. Albert Chang was also the Chief Executive Officer whose contract will expire by end January 2009 while Lam was the managing director of the company. Zelan also announced that chief operating officer Khoo Boo Seong ceased to be the executive director while Yoong Nim Chee, who is currently the director of corporate affairs of MMC Corp Bhd was made Zelan’s executive director. Datuk Anwar Ali was made chairman of the company. Share price of Zelan has shed 58.5% since news of non-renewal of Albert Chang’s employment
contract came out in mid November.

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