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Local construction sector to be rejuvenated

Source from: New Straits Times, Original Article


KUALA LUMPUR: The local construction contracts and job flows are expected to gradually pick up this year with the East Coast Rail Link (ECRL) subcontracting packages being the focus, analysts said.

Maybank Investment Bank Bhd analyst Adrian Wong said the proposed realignment of the Kota Bharu-Dungun stretch (Package A; 210.4km) of the ECRL was undergoing a three-month public inspection process till February 24 this year.

“We believe tenders for the subcontracting civil work packages could start by the second-quarter (Q2) of 2020 with awards in the second-half of 2020.

“We also expect awards of the remaining packages from the on-going projects in East Malaysia such as the Pan Borneo Sabah Highway, Sarawak Coastal and Second Link Road,” he said in a report today.

Although the Kuala Lumpur-Singapore High Speed Rail (HSR) and Klang Valley Mass Rapid Transit 3 (KVMRT 3) remain wildcards at this juncture, he said announcement of the projects’ revival this year would excite the market.

“We are upbeat on the construction sector’s outlook in 2020 with a ‘positive’ stance on Gamuda Bhd with our preferred ‘buy’ pick.”

Wong estimated local contractors to secure up to RM10 billion of jobs from the ECRL based on the rule of thumb that 40 per cent of total civil works would be awarded to local contractors.

He said the Penang State Government had, in October last year, received a Federal Government Guarantee to raise bonds to fund the Bayan Lepas Light Rail Transit for RM8 billion.

“This will expedite the start of the Penang Transport Master Plan (PTMP) project. Assuming the project delivery partner (PDP) agreement is finalised within first-quarter of 2020, we could see the first awards by end 2020.”

He said higher gross development expenditure allocation of RM56 billion for 2020, announced in 2020 Budget also signalled the government’s commitment to develop public infrastructure and rural development especially in the deeper parts of Sabah and Sarawak.

“Spending on public infrastructure and amenities will continue to be in focus as the government continues to reduce the development gap between the urban and rural areas.

“Allocation for the construction and upgrading of hospitals, schools and affordable housing units with an estimated spend of at least RM10.2 billion has been set aside under 2020 Budget.”

Meanwhile, Hong Leong Investment Bank (HLIB) expects contract awards and news flow to accelerate going forward due to recovery in development expenditure as the government rolls out major infrastructure projects.

“Stronger job flows from Sarawak are anticipated with a record high allocation of about RM10 billion for development expenditure,” HLIB said.

The firm maintained a “neutral” call on the construction sector, adding that mega projects news flow and healthy orderbook levels should protect on the downside.

“The first-half of 2020 should be dominated by tender news flow regarding ECRL and Pan Borneo Sabah, which will see packages 28, 29 & 30 (RM980 million) will be tendered out in March 2020 with remaining 20 packages falling under the 12th Malaysia Plan (2021-2025).”

Based on reports, the government is expected to come to a decision on HSR and MRT3 by mid-2020.

HLIB said PTMP (RM24 billion) may feature in the secnd half of the year starting with Bayan Lepas LRT to be rolled out if the bond funding was firmly in place.

Smaller projects including Rapid Transit System (RM3.2 billion) and Iskandar Bus Rapid Transit (RM2 billion) may also come into the foray in the second half of this year.

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