Major projects under Budget 2011 will drive demand for building materials

By IZWAN IDRIS izwan@thestar.com.my

PETALING JAYA: The construction sector emerged as the clear winner from Budget 2011 but a rally in the past months means stocks valuation are no longer cheap and the risk is higher.

The smart money call is on the building material suppliers, from steel makers to cement producers, analysts said.

“We expect more positive news flow in the coming months for the construction sector,” MIDF Research said in a note yesterday, predicting a slew of project roll-outs and tender awards in the coming months.

While the question of who will bag what remained unanswered, analysts said the sheer number of upcoming construction jobs out there would drive up demand for building materials.

Malaysia Iron and Steel Indsutry Federation (MISIF) president Chow Chong Long said there was enough capacity in the country to meet the anticipated increase in demand for construction steel bars and other products.

“We don’t foresee steel shortages if the construction projects listed in Budget 2011 are implemented next year,” he said in a SMS reply to a StarBiz query.

He noted that steel factories in the country were currently running at about half their installed capacity.

“MISIF does not expect steel demand to increase until the middle of next year as it usually takes up to six months for projects to take off from the date they are awarded,” Chow said.

On Friday, Prime Minister Najib Tun Razak announced that a number of multi-billion ringgit projects would start construction next year.

This includes the RM40bil mass rapid transit system in Kuala Lumpur, six highways, the RM26bil KL International Financial District and a plan for an iconic 100-storey tower by Permodalan Nasional Bhd, on top of smaller builds such as rural roads, schools and hospitals.

Most of the big projects were already made known prior to last Friday because they were part of the 10th Malaysia Plan, or the Economic Transformation Programme.

Hence, it was not really a big surprise for the market when the projects were announced in the budget.

“These construction and infrastructure projects would require a lot of steel bars and cement,” BIMB Securities head of research Rosnani Rasul said yesterday.

“We are comfortable to retain our forecast 7% growth in cement demand in 2011,” she added. Among potential beneficiaries are Lafarge Malayan Cement Bhd and YTL Cement Bhd.

Shares in bigger construction groups Gamuda Bhd, IJM Corp Bhd, MMC Corp Bhd and WCT Bhd declined yesterday, largely in sympathy with the FTSE Bursa Malaysia KL Composite Index’s (FBM KLCI) 9.16 points drop yesterday to 1,480.70 points.

The few big gainers yesterday included Ann Joo Resources Bhd, a steel maker rated as a “buy” by AmResearch and BIMB Securities.

“We expect significant gains for the steel sector, which is a cheaper entry for leverage to the Malaysian infrastructure theme,” AmResearch analyst Mak Hoy Ken wrote yesterday.

Mak’s top pick for the steel sector is Ann Joo. The stock yesterday climbed 14 sen, or 4.7%. to RM3.12 – its highest level since January.

Specialisation may help smaller firms stand out from the pack and MIDF Research sees pre-cast concrete manufacturer MTD ACPI Engineering Bhd as a potential beneficiary.

In the budget, the Government forecast its development expenditure would drop 9% to RM49.2bil in 2011, and the slack in spending to be taken up by the private sector.

One of the key aspects of infrastructure development hinges on the success of the implementation of public-private partnership (PPP) projects.

But given the lack of clear details, “much (uncertainty) still lingers on issues like execution of these projects,’’ Inter-Pacific Research head Anthony Dass noted in his report yesterday.

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Govt to spend RM100m on Karambunai resort

By Sharen Kaur

DEVELOPER and resort operator Karambunai Corp Bhd (3115) will build an integrated eco-tourism resort (IR) in Kota Kinabalu, Sabah, for over RM3 billion.

In unveiling the 2011 Budget yesterday, Prime Minister Datuk Seri Najib Tun Razak said the government will allocate RM100 million to part-finance the development.

Najib said the project will start next year.

The IR project is now under planning and it will take about five years to complete.

It is learnt that the project, which may look like Singapore's Marina Bay Sands, will be developed over 200ha of land in the Karambunai peninsula.


Karambunai Corp has 600ha of land in the Karambunai peninsula. It has since 1997 used about 130ha to build the five-star Nexus Resort Karambunai, Nexus Golf Resort Karambunai and 200-odd units of luxury beachfront villas.

Company sources said the IR project will have four- and five-star hotels and resorts, waterfront properties and an entertainment centre.

It may also include a museum, cultural villages, a cable car and a theme park similar to the famed Disneyland.

"We have the support of the state-government, which is very pro-active in eco-tourism projects in Sabah. International experts will be roped in for the IR project to ensure that it attracts locals and foreigners, targeting a boost in tourism," one source said.

Sabah-based Karambunai Corp is linked to NagaCorp Ltd, which is listed in Hong Kong and operates a casino in Cambodia.

The two companies' common shareholder is Tan Sri Dr Chen Lip Keong, who founded NagaCorp and serves as its chief executive officer. Chen is president of Karambunai Corp.

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Multi-billion projects in the pipeline

PETALING JAYA: The Government has earmarked several multi-billion projects that will see the construction of several highways, a mass rapid transit (MRT) system, and the Kuala Lumpur International Financial District (KLIFD) amongst others, to be kicked off next year.

Generally, the planned development is well-received by the construction sector.

Prime Minister Datuk Seri Najib Tun Razak yesterday said in the Budget 2011 speech that under the public-private partnership (PPP) initiatives, several projects under the 10th Malaysia Plan would be implemented next year through private investment of RM12.5bil.

The Government had allocated RM1bil from the facilitation fund.

Among the PPP projects mentioned are the construction of several highways and 300-megawatt combined-cycle gas power plant in Kimanis, Sabah.

Others are the International Islamic University Malaysia Teaching Hospital, the Women and Children’s Hospital, Integrated Health Research Institute Complex in Kuala Lumpur and Academic Medical Centre.

Additionally, high-impact strategic developments were also identified.

The first is RM26bil KLIFD where the Government is prepared to consider special incentive packages to attract investors to the KLIFD.

Next, is the MRT in Greater KL with an estimated private investment of RM40bil which is expected to be completed by 2020.

Also, the mixed-development of the Malaysian Rubber Board (MRB) land in Sungai Buloh to be undertaken by the Employees Provident Fund (EPF).

This is to be completed by 2025 and the development is estimated at RM10bil.

Finally is the development of another landmark building, a RM5bil 100-storey tower, Warisan Merdeka to be developed by Permodalan Nasional to be completed by 2020.

Master Builders Association of Malaysia (MBAM) was appreciative that the Government would focus on many construction projects under Budget 2011.

Its president Kwan Foh Kwai hoped the Government would ensure the speedy award and efficient implementation of high impact projects.

“Any delay in implementation, will mean additional costs to the project,” he said in a statement yesterday.

Additionally, StarBizWeek also contacted Kwan to ask on possible shortage of construction capacity such as professional and labour workforce as well as raw materials due to the implementation of the mega-size projects.

“Because most of the projects are spanned across 10 years on average, we do not expect to experience any shortage on professionals such as engineers and architects as well as raw materials.

“The current demand of raw materials are also within the capacity of suppliers,” he said. But, Kwan was a little bit concern on labour workforce as the industry now was over-reliant on foreign workers.

“That is why MBAM supports the initiative to reshape the economy through a focus on intensifying human capital development, vocational training and improving lifelong education that will help improve the labour force in Malaysia,” he said.

Meanwhile, EPF chief economist Norashikin Abdul Hamid said the development of MRB land by EPF was expected to boost the economy and the construction sector in particular.

“The Government’s decision in selecting EPF to enter into a joint-venture with the Federal Government to develop the land has been weighed and deliberated carefully, given EPF’s strong financial position,” she said.

UEM Land Bhd director of finance, corporate affairs and investment Mohd Zakir Omar supported the PPP concept and the company had been pursuing to the Government a number of projects in the past few years involving property development.

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