Adjusted Budget 2015 lends positive light on construction sector
KUALA LUMPUR: The revised Budget 2015 has been viewed positively by analysts as the unaffected development expenses is expected to benefit Malaysian contractors and also alleviate risk of delay in major projects.
Despite lower oil revenue, the government has decided to maintain gross development spending at RM48 billion.
Some of the biggest recipients of the allocation include rural transport infrastructure such as the Pan-Borneo Highway, water projects, flood mitigation, affordable housing, and property/ facility maintenance.
AmResearch Sdn Bhd (AmResearch) in a recent report, said, in addition to a sum of RM800 million being allocated to reconstruct flood-hit areas (such as schools, hospitals, roads and bridges), another RM893 million has been set aside for flood mitigation projects.
“We see l ocal Sarawakian contractors, namely Hock SengLee Bhd (HSL) and KKB Engineering Bhd, as potential beneficiaries of the Pan Borneo Highway – although its implementation would likely be on a long-term basis,” it said.
The research arm also pointed out that companies such as Sarawak Cable Bhd (Sarawak Cable), fortified by its acquisition of the Leader Group’s cable businesses completed last month, is a strong bet as it vies for electricity and transmission line jobs in Peninsular Malaysia and East Malaysia.
Meanwhile, for other major projects in Malaysia, Am Research said the budget is in line with its conviction that the big-ticket rail related jobs, which are Klang Valley MRT2 and LRT3, will forge ahead.
Maybank Investment Bank Bhd’s research arm (Maybank IB Research) also noted that the government has committed that it will not compromise development plans that would improve productivity.
As for flood-hit related projects, the research arm noted that measures to improve logistics to facilitate exports would also contribute to more construction projects.
However, it pointed out that the projects would only benefit smaller unlisted construction players.
Am Research said, the associated works for the flood-related rebuilding initiatives, could be carved out into smaller packages, with priority accorded to the smaller local contractors in the affected areas.
Elsewhere, Maybank IB Research said listed construction players with exposure to infrastructure projects stand to win contracts from the major public transportation projects.
Apart from that, it viewed construction players would also benefit if foreign workers levy rate is reduced. The 11th Malaysia Plan announcement in May 2015 would further elevate the prospect of the sector.
Overall, Maybank IB Research and Am Research maintained ‘overweight’ views on the sector.