The Sarawak state government is projecting a capital injection of about RM100b by 2028, which is envisioned to elevate the state into a developed economy status. About RM64b will come from the state’s annual budget while the state’s energy development company Sarawak Energy is expected to pump in about RM40b up to 2026. MIDF notes that this is a conservative estimate by the state government as the state’s budget averages about RM10b annually.
Among other investments would involve “several billion ringgit” from Sumitomo and Samsung for Sarawak’s first hydrogen plant, expected to begin construction this year. Retendering of sick projects. The view is that this would mean more infrastructure works are expected to be rolled out in the state. Going by media reports in recent months, it is believed that the state government’s current focus is to look into sick projects, meaning those that were delayed or abandoned. About 84 sick projects have been identified in Sarawak and among action plans to tackle this is to appoint rescue contractors. This could suggest that quite a number of projects would be retendered, a good opportunity for construction players to replenish their order books.
More jobs are in the pipeline
Construction prospects remain bright over the state as it remains committed to reimplementing projects shelved in 2018 following a change in Federal Government. Meanwhile, tenders for the state-funded Second Trunk Road which spans 225km, are expected to be called this year, with seven work packages. There will be seven more packages next year. The entire project is expected to cost RM5.84b.
Another closely watched plan is the Post Covid-19 Development Strategy where the State Government has committed RM63b for various efforts, among the focus is to develop basic infrastructure, namely roads and bridges, water and electricity supply, and telecommunication network. In June, the state government said that about 7,530km of new roads
needs to be built to connect all rural areas while 3,487km of roads must be upgraded or rehabilitated. This itself would translate to strong job flows over the long term.
Companies In Focus
Cahya Mata Sarawak Maintain BUY | Unchanged target price: RM1.37 Price @ 16 th August 2022: RM0.94
• Sole cement manufacturer in Sarawak, stands to benefit from strong project rollouts
• Active cost control measures
• Strong balance sheet with net cash position of RM100.6m Share price chart
KKB Engineering
Maintain BUY |Unchanged target price: RM1.50 Price @ 16th August 2022: RM1.34
• Experienced in civil projects such as roadworks and water pipelines
• Solid outstanding order book of about RM412m which translates into earnings visibility up to FY24
• Strategic relationship with SEDC to tap into vast infrastructure jobs
Sarawak Premier Tan Sri Abang Johari Tun Openg said yesterday that the state government is finalising an aid to assist construction players, which will focus on the prices of raw materials. While this is not a massive headwind for most of the companies under our coverage, this is a much-welcomed move for the industry in mitigating the downside risks.
