Analysts: ‘Look East’ for Construction Boost
Analysts are calling on investors to look towards East Malaysia for boosts in construction stocks, following Sarawak’s record budget in 2019 with an allocation of RM11.9 billion — more notably, RM9.1 billion for development expenditure.
In tandem with the state’s agenda to alleviate the higher economic progress of Sarawak, a higher amount of RM6.1 billion will be spent to intensify rural developments with the aim to bridge the urban-rural divide.
The state allocation is in addition to the RM4.3 billion allocation for the development of Sarawak by the federal government under Budget 2019.
Analyst Adrian Wong from Maybank Investment Bank Bhd (Maybank IB Research) yesterday said the development expenditure will, in part, fund the mplementation of key infrastructure projects such as the Sarawak Coastal Road and Second Link Road and State Water Grid projects, presenting orderbook replenishment opportunities for selected contractors.
“Our channel checks suggest that the pre-qualification of contractors for the Coastal Road and Second Link Road have closed as of September 12, 2018 with tenders for the work packages already on-going,” he said in his report.
“The earliest we would expect any awards could be by the first quarter of 2019. Additionally, the state has also allocated RM2.3 billion for the development of utilities infrastructure to supply electricity to the rural areas.”
Recently, the team at Hong Leong Investment Bank BHd (HLIB Research) made a similar call that construction players would aim for jobs in Sarawak, citing the state as “the next place to be” since job flows for industry players have “slowed down significantly” in Peninsular Malaysia following the change in federal government.
“We understand that industry players are aiming for jobs in Sarawak as the state government has allocated circa RM9 billion for development expenditure under state budget 2019, which is the biggest in the history of the state.
“Funding for those projects is expected to come from Sarawak’s state reserves (circa RM31 billion) which may insulate the projects from risk of reduction of federal government spending,” the research firm wrote in December 27.
Looking at select players, Maybank IB Research believed Cahya Mata Sarawak Bhd (CMS) remains the key beneficiary of on-going developments in Sarawak as they are the main building materials supplier within the state.
“We gather that CMS is also tendering for work packages from both the Coastal Road and Second Link Road – each work package value could be up to RM1 billion,” Wong added.
“There is potential upside to our forward earnings, having only assumed RM150 million of job wins for FY19E/FY20E.”
Elsewhere, the analyst also pegged Hock Seng Lee Bhd (HSL) to be in the running for work packages from the Sarawak Water Supply Grid Programme following its good track record on wastewater management and sewerage projects.
“We believe HSL also has the upper hand with a fleet of tunnel boring machines (TBMs) at their disposal.
“Also, KKB Engineering Bhd (KKB) is another potential beneficiary which will by vying to secure the supply of water pipes for the project. We understand that KKB remains one of the key water pipe manufacturers within the state.”
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