Construction Monthly Review: December 2008

January 7, 2009 at 6:33 am Leave a comment

· Construction stocks staged a strong recovery
Construction stocks staged a strong recovery last month with the KLSE Construction Index rising 9.0% while all companies under coverage were in positive territory.
· 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. Last month, news reports highlighted that much of the funds for infrastructure development in the Sarawak Corridor of Renewable Energy (SCORE) has yet to be disbursed by the federal government. Another hiccup was noted for the dispute over the financing agreement for the
RM11bn Pahang-Selangor water transfer project.
· New jobs in the pipeline
Construction and building materials players can look forward to spill-over effects from Singapore’s plans to bring forward up to S$4.7bn (RM11.3bn) worth of construction projects to help its faltering economy. Among companies under coverage, Sunway Holdings may stand to benefit as it already has a presence in the island republic via its joint ventures to develop apartments as well as supply of premix concrete and aggregates. Another source of new jobs will come from the construction of a new LRT line from Kota Damansara to Cheras as well as the extension of existing LRT lines.
· Contracts awarded
New jobs worth RM470.2m were awarded in Dec 2008.
· Disappointing 1QFY09 results by Gamuda
Gamuda’s 1QFY09 net profit of RM55.0m was 37.5% lower y-o-y due to margin compression and slow work progress in the double tracking project as a result of hiccups in land acquisition. The 5-year project will now be delayed by a year. An interim dividend of 4 sen gross has been declared, a sharp cut from 12.5 sen in 1QFY08. For further details, please refer to our report on Gamuda’s 1QFY09 results dated 18 December.
· Maintain UNDERWEIGHT

Share price performance

Construction stocks staged a strong recovery last month with the KLSE Construction Index rising 9.0% while all companies under coverage were in positive territory.
On notable filings, Platinum Investment Management Limited trimmed its holdings in Gamuda by 0.2% while the Employees Provident Fund continued to accumulate an additional 0.7% stake in the construction giant.

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.
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 wanted to give it to the Shimizu-IJM Corp-UEM Group consortium, which submitted the lowest bid.

New jobs in the pipeline

Singapore’s plans to bring forward up to S$4.7bn (RM11.3bn) worth of construction projects to help its faltering economy may have a spillover effect on Malaysian construction players as well as building material suppliers. Among companies under coverage, Sunway Holdings may stand to benefit as it already has a presence in the island republic via its joint ventures to develop apartments as well as supply of premix concrete and aggregates.
Besides the potential spill-over effects from Singapore, industry players are also 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. Meanwhile, Syarikat Prasarana Negara Bhd (SPNB), a unit of the Ministry of Finance Inc, may call for tenders to extend the existing LRT lines by as early as 1Q09. According to sources, the project may be government-funded or implemented through private finance initiatives. Key players like UEM Builders Bhd (UEMB MK, not listed), IJM Corporation Bhd, YTL Corporation Bhd (YTLC MK, Buy, TP: RM8.00), Ho Hup Construction Bhd (HO MK, not rated) and Loh & Loh Corporation Bhd (LLHL MK, not rated) are expected to bid.

Other notable construction news
– RM3.1bn West Coast Expressway project was reportedly shelved by the government following failure by the consortium to achieve financial close within stipulated timeframe. However, the consortium in which Kumpulan Europlus Bhd (KEUR MK, not rated) has a 60% stake saw respite when the government agreed to extend the due date to achieve financial close until 19 March 2009.
– Zelan Bhd (ZELN MK, not rated) 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 (MMC MK not rated) 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.
– Construction costs eased further as mobile crane owners have temporary reduced the rental rates of their vehicles by 5% in an effort to help the faltering construction industry. Malaysia Mobile Crane Owners Association president Lai Keng Guan said the reduction was a temporary measure to help contractors mitigate the effects of the current economic slowdown. It also wanted to assist the Government to lower construction costs.

Contracts awarded
Jobs worth a combined RM470.2m were awarded during the month.

Comments:
Gamuda’s 1QFY09 net profit was significantly lower due to margin compression and slow work progress in the double tracking project as a result of hiccups in land acquisition. The 5-year project will now be delayed by a year. An interim dividend of 4 sen gross has been declared, a sharp cut from 12.5 sen in 1QFY08.

Advertisements

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

Banking Monthly Review : December 2008 Oil & Gas Monthly Review: December 2008

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: