Potential Construction Projects Flow in 2011

During 4Q 2010, there were a series of positive news brought into construction sector. These news could possibly bring some cheers for local contractors during the "award ceremony" soon. To summarize it, let us examined and explored the news highlighted in 4Q 2010 for construction sector:-

OSK Research:

• KL Mass Rapid Transit, with the cabinet approving 1 of the 3 lines proposed, which will run from Sg Buloh to Kajang. It is said that the Government will set up an SPV to fund the RM36bn job via bonds and other capital market instruments. Tenders for the Sg Buloh-Kajang line will be open in April while construction will commence in July. Gamuda-MMC JV, which was recently appointed as Project Delivery Partner, to be the ultimate beneficiary of the MRT. The JV is only allowed to tender for the tunneling works estimated at RM14bn.
• Construction of the RM5bn Warisan Merdeka development is said to be slated to commence this year for implementation in 3 phases over 10 years. Amongst the local contractors, we think IJM is in the best position to participate in the tower portion given its track record with high-rise buildings in KL city center. Green building specialist Putrajaya Perdana could also benefit from the non-tower portions.
• A feasibility study is currently being conducted to evaluate the KL-Singapore High Speed Rail and will be concluded by mid-year, which cost RM10-12bn. Magnetic levitation technology was being proposed. OSK gather that YTL Corp has made proposals for several portions of the project.
• Brazail based Vale SA, the world's largest iron ore producer will invest RM467mil in Malaysia this year. The investment will involve the construction of a maritime terminal and distribution center to transport iron ore from Teluk Rubiah, Perak. We understand that Muhibbah Engineering is the only local contractor that has been pre-qualified for some of the packages.
• Bintulu Port has been invited by Sarawak government to submit a detailed proposal for the Samalaju Port. If implemented, we think Hock Seng Lee could win some packages given its marine engineering expertise.
• Malaysia and India have signed an MOU on technical assistance for road development which could enable Malaysian contractors to participate in the latter's projects. We see IJM as the clear winner from this MOU given its track record of building more than 1,400km of roads in India.
• During the Big 5 International Building and Construction Show in Abu Dhabi, it was reported that some more than USD23bn worth of construction contracts are ready to be awarded in the UAE. We view WCT as the ultimate beneficiary from contracts flow from the UAE given its past record in Abu Dhabi, Dubai and Qatar.

Where is the money for "Warisan Merdeka"?

One of the most controversial project announced in Budget 2011, Warisan Merdeka claim the top spot. Dubbed as Malaysia's tallest building with 100-storey tall, the 10 years project will kick-start next year. However, many quarters lamented the project as lavish, unnecessary, and would worsen the famous KL city traffic.

In respond to this, PNB's group chief executive Tan Sri Hamad Kama Piah hold a press conference to address the issue. Among the key phrases taken are:

"We are not taking government's money (for this project)"

"PNB had the capability to finance the project through internally generated funds"

"PNB existing head quarter will be 30 years old when the project is completed"

Show me the $$$...

Yes, I believe PNB would not use government's money for this project. Anyway, what does it meant by internally generated funds? As we know, PNB managed a range of Amanah Funds in the country. 

Yes, I believe PNB would not use our Amanah Saham Funds' money for this project. The internally generated funds is mainly coming from the returns generated through investments in a portfolio of listed companies, such as Sime Darby. Actually, who gave money to PNB to invests? Is this called "internal generated funds"?

Meanwhile, there is fact that KL office space is over-supply currently, and projected it will precede for another 6 years. Current take-up rate at KL city center is only 80%. Although it will take 10 years to complete, the huge building means great office space will be made available by then. Could PNB find the tenants by then?

Yes, PNB will make the new tower as its new head quarter, and for its investee companies too. But, can it be enough for 100% occupancy? Definitely NOT enough. So, PNB have to attract other tenants, which is a problem to another problem - traffic congestion.

Just imagine, 10,000 people with 2,500 cars coming out from the car park!!! How are you going to attract tenants? If no tenants, PNB would face losses (I hope not our Amanah Saham) then.

Undoubtedly, I would like to see a successful big project taking shape. But, due considerations must be made to such multi-billion project. Can we build it at Putrajaya instead?