Analysts: Construction job flows to pick up again in 2H17
KUALA LUMPUR: The momentum on contract awards and job flows in the construction sector is expected by analysts to pick up again in the second half of 2017 (2H17), continuing into 2018.
According to the research arm of Maybank Investment Bank Bhd (Maybank IB Research) in a sector update, major rail projects will continue to be a key feature with the KVLRT 3 expected to kick-off the 2H17 contract awards as the first main work packages are likely to be announced in July or August.
“Other mega rail projects which could award packages in 2H17 would include the GemasJohor Baharu double track rail and maiden packages from the 600 kilometre (km) East Coast Rail Link (ECRL),” Maybank IB Research said.
“Remaining packages from KVMRT 2, Pan Borneo Sarawak Highway and West Coast Expressway could be awarded as well.”
Maybank IB Research noted that building construction jobs coming from transit oriented developments (TOD), Petroliam Nasional Bhd’s (Petronas) refinery and petrochemical integrated development (RAPID), private property developments and government housing schemes would also continue to contribute construction works.
It further noted that all these would replenish construction companies’ orderbooks progressively.
Maybank IB Research highlighted that Malaysia Rail Link (MRL) launched a three-month public display of the ECRL alignment Phase 1 which ended in May 2017.
“The display confirmed the 600km length with 23 stations that will stretch from the Integrated Transport Terminal (ITT) Gombak to Wakaf Bahru in Kelantan,” the research arm said. The research arm pointed out that in May 2017, a supplementary agreement was signed to facilitate the construction of the second phase of the ECRL which will cover the part from the Integrated Transport Terminal (ITT) Gombak to Port Klang with an estimated length of 88km.
It said that the estimated cost for this section is RM9 billion.
Maybank IB Research gathered that feasibility studies for Phase 2 are currently on-going and a public display will be conducted after the completion of the studies.
“We could see the first contract awards from ECRL in 2H17,” it projected.
Maybank IB Research’s checks suggested that 30 per cent of the estimated contract value could be allocated to local contractors.
Potential beneficiaries within its coverage included Gamuda Bhd (Gamuda), IJM Corporation Bhd (IJM) and WCT Holdings Bhd with established track records in railway development.
From an earnings perspective, Maybank IB Research expected companies with exposure to KVMRT 2 (GAMuda, IJM, and Sunway Construction Group Bhd) to report relatively stronger earnings in 2H17 as work progress begins to accelerate.
The research arm has however noted that progress at the Pan Borneo Sarawak Highway remains slow (approximately three to five per cent progress) due to finalisation of contract details which could potentially delay meaningful earnings contribution initially expected in the third quarter of 2017 (3Q17) to 4Q17 or 1Q18.