The construction sector is in for a robust season with the roll-out of various mega public infrastructure projects such as the RM45b MRT3 or MRT Circle Line which will provide connectivity to the existing MRT, LRT, monorail and train lines in Klang Valley through interchange stations, and the RM9.5b Bayan Lepas LRT, which will help to ease the chronic traffic congestion in Penang Island.
Coupled with the roll-out of six flood mitigation projects reportedly to be worth RM13b including flood mitigation works at Sungai Johor, the construction of the Sungai Klang-Sungai Rasau dual-function reservoir (Selangor) and the Sungai Golok Integrated River Basin Development Phase 3 (Kelantan) and new Pan Borneo Highway packages, the house believes there will be enough jobs to go around for all players. Kenanga added it is unperturbed by a lower gross development expenditure of RM90b in Budget 2024, vs. RM97b estimated in Budget 2023 as the government can tap into DanaInfra Nasional Bhd to fund these large-scale public projects on an off-balance sheet basis.
In terms of timing, Bayan Lepas LRT could be rolled out as soon as the middle of the year as “chariot driver” GAMUDA is already in “advanced” discussions with the government to finalise the implementation model, pending government’s approval while the Department of Environment published the Environmental Impact Assessment (EIA) report for a segment of the LRT on 5 Mar 2024. This federal-funded project comprises land acquisition cost of about RM1.5b and construction cost of RM7bRM8b. Meanwhile, the house said it understands that MRT Corp recently asked bidders for MRT3 work packages to extend the validity of their tenders for a fourth time to end-Mar 2024 and it appears that MRT Corp is likely to ask for another extension soon.
Based on the above, Kenanga believes realistically, the project may only get off the ground in 2HCY24 the soonest.
For the KL-Singapore high-speed rail (HSR), so far only BLAND (Not Rated) announced that its 70%-owned unit Berjaya Rail had formed a consortium with IJM, MRCB (Not Rated) and national railway firm KTMB to submit a bid for the HSR when the request for information (RFI) exercise closed on 15 Jan 2024. It was reported that a total of seven consortia submitted their bids for the HSR project. In our opinion, it is still early days for the project.
On the other hand, the government has committed to expedite on-going projects in East Malaysia such as Pan Borneo Highway and Sabah-Sarawak Link Road. According to the Mid-term Review of the 12MP, Pan Borneo Highway Sarawak Phase 1 was 92% completed while the Phase 1A in Sabah was 74% completed in 2023. Given its involvement in the Sarawak-Sabah Link Road project, KIMLUN is keen to bid for work packages from Pan Borneo Highway Sarawak Phase 2, while IJM has also shown interest. Meanwhile, the Sabah state government said that the entire 19 work packages of Phase 1B of the Pan Borneo Highway Sabah worth a total of RM15.7b will be awarded by Mar 2024.
Meanwhile, the private-sector construction market will stay vibrant, underpinned by massive investment in new semiconductor foundries and data centres. Malaysia is gaining traction in terms of destination for data centre investment, as evidenced by TENAGA having signed Electricity Supply Agreements with nine data centres requiring a potential energy demand of 2,300MW.
So far, nine data centres have been completed with a total energy demand of 635MW. The national utility company guided for potential additional demand for 7,000MW of electricity from data centres by CY34. These semiconductor foundry and data centre projects are sizeable, ranging between RM1b to RM1.5b each, and are typically on a fast-track basis, which means they fetch better margins. SUNCON and KERJAYA (OP; TP: RM1.90) have already bagged such contracts.
Generally, builders have guided for higher new job wins this year. GAMUDA guided for RM25b new job wins within 24 months, while SUNCON recently raised its guidance for new job wins in FY24 to RM3b from RM2.5b. While WCT has not secured any new key jobs in FY23, it also guided for bullish new job wins of RM3b (vs. our more prudent assumption
of RM1b).
Meanwhile, IJM’s YTD FY24 (FYE: Mar 2024) new job wins of RM3.62b have already surpassed its full-year target of RM3.0b and the house said it assumes it will secure RM4.6b contracts in FY25 (FYE: Mar 2025). On the other hand, YTD, KERJAYA has secured RM377.9m worth of new jobs against the full-year assumption of RM1.5b. KIMLUN’s YTD new jobs have hit RM133.6m against our full-year assumption of RM750m.
The industry is poised for margin recovery as newly-secured contracts reflected cost inflation. In addition, post the
pandemic, it has become increasingly common for contracts to carry price escalation clauses to safeguard the margins of
contactors. As such, the house said it expects industry margins to improve in CY24 as older contracts with low margins tail off and new contracts with normalised and higher margins start to contribute.
