Construction to gain in Malaysia plan to be unveiled tomorrow

All eyes are on the construction sector as it is expected to be a big beneficiary of the 11th Malaysia Plan (11MP) that will be tabled tomorrow.

Analysts expect the Government to continue to spend on high-impact construction work, particularly rail projects, that will boost the country’s economic growth from 2016 to 2020. The mass rapid transit line two (MRT 2) and light rail transit line three (LRT 3), totalling RM34bil, are expected be rolled out in the next two years.

Affordable housing, highways and oil and gas facilities as well as water and sewerage infrastructure would be part of the plan, analysts are predicting.

As a result, analysts are becoming more bullish on the prospects of construction players. Besides big boys like Gamuda Bhd and IJM Corp Bhd, analysts anticipate mid and small-cap construction players to also benefit.

CIMB Research noted in its report on the construction sector yesterday that “given the fairly limited supply of capacity from some of the bigger players, we think that the smaller contractors should enjoy a much bigger spillover effect compared to the last two to three years”.

The research house’s top pick for the small-cap segment is Muhibbah Engineering (M) Bhd as the civil, marine and structural engineering services provider is targeting more jobs in Petroliam Nasional Bhd’s Refinery and Petrochemicals Integrated Development project in Pengerang, Johor.

On top of that, Muhibbah Engineering is looking for other marine and port-related jobs outside of Pengerang.

Hong Leong Investment Bank (HLIB) Research, meanwhile, opined that Mitrajaya Holdings Bhd, which had an order book of some RM1.9bil, was a strong contender for jobs related to LRT 3.

The announcement of the 11MP would also bode well for soon-to-be-listed Sunway Construction Group Bhd, an analyst said.

CIMB Research added that the 11MP should have strong focus on public transport, and in particular, the new plans for the bus rapid transit (BRT).

The research unit said an extension of the BRT to cover Kuala Lumpur and Klang could be part of the plan.

The Sunway group, via a public-private partnership (PPP) with Prasarana (M) Bhd, is close to completing the seven-station BRT line from the Setia Jaya KTM station to the upcoming USJ 6 LRT station.

CIMB Research estimates RM150bil worth of jobs in the pipeline, including the high-speed rail project that will cut travelling time between Kuala Lumpur and Singapore to 90 minutes. But it noted that the timeline for the implementation of the RM40bil rail project was still uncertain. It also said the six remaining highways brought forward from the 10th Malaysia Plan that carry a total cost of RM21bil also required more clarity.

“After the cancellation of the Kinrara-Damansara Expressway, we expect the next plan for a high-impact highway to shift to the RM2bil-RM3bil Serdang-Kinrara-Putrajaya Highway,” said CIMB Research.

Analysts are also paying attention on the RM27bil Pan-Borneo Highway (pic) in Sabah and Sarawak.

HLIB Research said it expected the Government to allocate a higher development expenditure of RM250bil compared to RM230bil for 10MP.

AmResearch said: “We believe the new allocation has to be balanced against the Government’s fiscal objectives – a 2015 fiscal deficit target of 3% and a balanced budget by 2020 – amid a weaker ringgit and lower oil revenue.”

With that in mind, analysts expect more PPPs in the next Malaysia plan compared to the previous ones.

The construction index has outperformed the FTSE Bursa Malaysia KL Composite Index year-to-date, rising 10.17% versus 2.75%. - The Star