Wednesday, July 07, 2010

Govt May Speed Up Rollout Mega Projects

This is to keep growth intact amid shaky global recovery

PETALING JAYA: A shaky global economic recovery may prompt the Government to speed up the rollout of big construction projects at home to keep domestic growth intact.
Mega projects that grabbed the headlines recently include the RM36bil mass rapid transit (MRT) project jointly proposed by Gamuda Bhd and MMC Corp Bhd, the RM7bil light rail transit (LRT) extension programme and the redevelopment of land belonging to the Federal Government.
The bulk of these potential contract awards are expected to go to the bigger players. The awards, if they materialise soon, would be a major boost for the sector.
“While we believe the market is fully aware that certain negative elements are still lingering in the sector, we feel that it is likely to ‘brave’ these negative elements and forge ahead of the curve, underpinned by the collective ‘buy-first-on-news’ mentality,” RHB Research Institute said in a note yesterday.
These so-called negative elements include slow pace of public project awards and the 23% cut in actual project development spending under the 10th Malaysian Plan as compared to the Ninth Malaysia Plan.
RHB Research yesterday upgraded the construction sector to overweight from neutral previously, buoyed by positive newsflow. It listed Gamuda Bhd as its top “tactical” pick, while Sunway Holdings Bhd ranked the highest on its “value” list.
Previous reports indicated that the MRT project might start as soon as early next year, while works to extend the LRT lines would commence by the end of the year.
There is yet to be a formal award of the proposed MRT project, or clear indication that the huge project would even take off soon despite being identified for implementation under the 10th Malaysia Plan.
OSK Research predicted the value of local contracts to be dished out this year to “easily surpass” the total RM10bil recorded in 2009.
The figure excludes potential award of LRT or MRT-related jobs, according to analyst Jeremy Goh who covers the sector at OSK Research.
The firm has a “neutral” view on the construction sector, largely because of unattractive valuations and “lack of significant re-rating” catalyst happening soon.
Shares in Gamuda had risen 22% year-to-date at yesterday’s close of RM3.15, while rival IJM Corp Bhd was up 10% at RM4.93. Construction and property player Malaysian Resources Corp Bhd (MRCB) closed at RM1.52 yesterday, up 22% year-to-date.
MRCB has been linked to the project to develop the Government land in Sungai Buloh, Selangor, although there has been no official award to the company so far.
RHB Research said the market was likely to react positively to the announcement of formal awards of Federal land parcels to “master developers” and the subsequent farming out of the sub-divided smaller land parcels to various developers.
“Given the scale of the projects and that most construction boys are already involved in property business, they are likely to get a slice of the action,” the firm said.

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