Gamuda, Protasco, WCT Eye Sabah Highway Project
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Gamuda, Protasco and WCT Holdings are bidding for Pan Borneo Highway (PBH) Sabah which will entail construction cost of RM12.9bil, or 20% lower than Sarawak's section. CIMB Equities Research said on Thursday that combined, they are the largest non-tolled highway in the country stretching over 2,000km.
"In our view, PBH Sabah is an election-driven project; we expect the award of the balance 18 packages worth RM9.7bil to be accelerated post-General Election 14 in May" it said.
Each PBH Sabah package could be worth RM500mil to RM1bil, by its estimates. It foresees peninsular contractors emerging as JV partners with Sabah players. In its coverage universe, Gamuda, Protasco and WCT are bidding for PBH Sabah.
To recap, phase 1 of PBH Sarawak (RM16bil) has been fully awarded, the RM12.9bil PBH Sabah will proceed with contract rollout in the months ahead.
Based on statistics revealed by Borneo Highway PDP (BHP), seven packages of PBH Sabah worth RM3.2bil have been awarded, leaving the balance 18 packages to be awarded in 2018 (2Q18 onwards), with an estimated value of RM9.7bil.
CIMB Research said due to the shortage of Sabah contractors (14 qualified Sabah contractors, listed and non-listed across all tiers, according to Ministry of Works vs. 35 total packages up for grabs for PBH Sabah), it remains to be seen if each bidding JV would be able to secure more than one package.
As in the case of PBH Sarawak, the tenders for PBH Sabah are not exclusively for Sabah players.
This, on the flipside, is positive for Peninsular Malaysia contractors, whom, according to Ministry of Works, would be able to hold a 30% stake in the bidding JV with Sabah players, which will hold a minimum 70% stake in the JV.
Overall, PBH Sabah is divided into three phases, with the largest (706km or 57% of total 1,236km) being phase 1 that covers the Southwest-Northwest-Central-Southeast Coast of Sabah up to Tawau.
"Within our construction universe, Gamuda, Protasco and WCT Holdings are known to be bidding for PBH Sabah.
"Gamuda and WCT Holdings are earlier beneficiaries of PBH Sarawak, after securing RM1.3bil to RM1.6bil contracts via their own JVs with Sarawak players.
"The sector's recent turn of events increasingly points to a post-GE revival of contract flows with the latest edition coming from PBH Sabah's RM9.7bil potential outstanding value in the pipeline.
"We stay sector Overweight, with Gamuda as our top big-cap pick for rail exposure and upside via PBH Sabah. The key sector risk is foreign contractor competition but this is not the case for PBH Sabah" it said.
CIMB Research has an Add call for Gamuda with a target price of RM5.92. Gamuda, through Naim-Gamuda (Naga) JV, secured a RM1.6bil package for the PBH Sarawak project in 2016.
For 2018, Gamuda is partnering with a Sabah contractor to bid for selected packages of PBH Sabah.
It also has an Add for Protasco, TP RM1.43. While Protasco did not secure any packages under PBH Sarawak, it has tendered for the PBH Sabah project, also with a local Sabah partner.
"In our view, Protasco could benefit more from PBH Sarawak's road maintenance contracts compared to PBH Sabah" it said.
The research house has a Hold call for WCT Holdings, TP RM1.60. WCT, through WCT-KKB JV, secured a RM1.3bil package for the Pan Borneo Highway Sarawak project in 2016.
For 2018, the group is bidding for a package of the Pan Borneo Highway Sabah with an undisclosed Sabah JV partner.