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Small construction players likely to gain from proposals |
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Written by The Star Online
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Saturday, 08 October 2005 |
THE Budget proposal to increase the development expenditure is an added fillip for the construction sector, but this is likely to benefit mostly the mid-cap to smaller companies, analysts said.
The big players like IJM Corp Bhd, Gamuda Bhd and Road Builder (M) Holdings Bhd would, however, have to be content with boosting their order books via overseas contracts, they said.
Development expenditure rose 24.5% to RM35.5bil, with some RM581mil allocated for the construction and upgrading of roads, and RM299mil for water and electricity supply in the rural areas.
TA Securities in a research note said in addition to the allocation, the RM12.4bil projects brought forward from the 9th Malaysia Plan would also favour small contractors.
“Overall, we think the budget is friendly to the sector but it is insufficient to revise our sector call from neutral to overweight as the future prospects for the big construction companies remain challenging,” the research house said.
In its report, Avenue Securities said Sabah and Sarawak enjoy a huge share of the development expenditure with RM4.3bil in allocations, which does not include the estimated RM6.1bil allocated for the Bakun project from 2006 to 2009.
Sarawak construction players Naim Cendera Holdings Bhd, Hock Seng Lee Bhd, Cahya Mata Sarawak Bhd and Zecon Engineering Bhd were expected to be beneficiaries, the research house said.
Some of the major projects in Sabah mentioned in the Budget include the Sapulut to Kalabakan and Sipitang to Tenom roads, the upgrading of Kota Kinabalu airport and the expansion of Universiti Malaysia Sabah and Queen Elizabeth hospital.
Avenue said unlike Sarawak, the Sabah construction landscape was more open, which allowed peninsular-based contractors, especially mid-cap ones like Bina Puri Holdings Bhd and WCT Engineering Bhd, to gain a foothold there.
It might be beneficial for the sector to consolidate to limit competition, especially since the budget also proposed incentives to encourage mergers and acquisition (M&A) among listed companies.
Analysts contacted by StarBiz do not expect more M&As in the sector.
“For the big boys to be interested in buying smaller companies, the M&As must result in a significant boost in order book,” said an analyst at a bank-backed brokerage.
TA Securities head of research Chie K. Ngu said: “There are some possibilities of M&A in the sector if the buyer could leverage on the weaker company's projects and unlock its value.”
He said IJM's proposed acquisition of 25% stake in Kumpulan Europlus Bhd (K Euro) included the taking over of the latter's West Coast highway toll concessions, flood mitigation canal between Kuala Langat and the Klang river and the Shah Alam to Shah Alam 2 highway project, as well as to take advantage of the landbank of K Euro associate, Talam Corp Bhd.
IJM shares closed 4 sen higher yesterday at RM4.76, Gamuda and Naim rose 2 sen each to RM4.22 and RM3.04 respectively while WCT shed 2 sen to RM3.24.
source: The Star Online 8-10-2005
link: http://biz.thestar.com.my/news/story.asp?file=/2005/10/8/business/12263295&sec=business
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