The construction industry is primed for a better year as seen by the slew of contracts and sub-contracts awarded recently to local construction companies for the building of a theme park and transportation projects.
Sunway Construction Sdn Bhd, a wholly-owned subsidiary of Sunway Holdings Bhd, obtained a RM257.9mil contract to construct package 4 of Legoland Malaysia Theme Park Development from IDR Assets Sdn Bhd last week.
Fajarbaru Builder Sdn Bhd (FBSB) was awarded a contract worth RM62.6mil by the Bina Puri Holdings Bhd-TIM Sekata joint venture for part of the light rail transit extension for the Ampang line.
The wholly-owned subsidiary of FajarBaru Builder Group Bhd also had a contract worth RM87.3mil from Trans Resources Corp Sdn Bhd to construct, complete, test and commission stations 1, 2 and 3 for the Kelana Jaya line extension.
Earlier, MMC-Gamuda JV Sdn Bhd was appointed to manage the mass rapid transit (MRT) project as the project delivery partner.
Analysts are generally upbeat on the construction sector. However, they are concerned about several issues such as high raw material costs as well as oil prices, appreciation of the ringgit and the speed of implementation of contracts.
“We don't see the rising costs of raw materials as a major issue affecting margins as they are likely to be factored into the bidding price,” an analyst said.
However, a sudden increase in prices of raw materials could impact the profitability of the projects.
In 2008, many property developers and contractors were caught having to deliver on contracts following record high raw material costs and oil prices.
“The anticipated roll-out of many sizeable government contracts such as the RM50bil KL Mass Rapid Transit (MRT) for the Greater KL should provide more jobs for construction companies this year,” a bank-backed analyst said, adding that more sub-contracts would be awarded.
ECM Libra Investment Research said the notable contracts awarded in February amounted to RM120.9mil, mainly clinched by PJI Holdings Bhd, Ireka Corp Bhd and Sunway Holdings for building construction.
According to HwangDBS Vickers Research, tenders for the second phase of the LRT project had been called. “We expect more news flow for the oil and gas and construction sectors. The award of the MRT project, the country's largest construction project by July 2011, should offer opportunities for players such as Gamuda, IJM Corp and WCT,” it said in a report.
OSK Research said the value of domestic contracts awarded in the fourth quarter last year totalled RM4.7bil (up 49% year-on-year, but down 16% quarter-on-quarter).
For the full year 2010, this amounted to RM15.6bil, beating its target of RM13bil.
The research house, in a report, conservatively estimated domestic contract awards to reach RM18bil this year.
“We believe the momentum of domestic jobs flow will be sustained this year and have set our 2011 target at RM18bil.
“This is expected to be fuelled by the potential of an early general election, projects under the ETP and more private sector developments,” OSK said.
“The possibility of an early general election this year should also bode well for the sector as the incumbent government may choose to roll out more jobs before the polls to create a feel good effect,” it added.
OSK added that the imminent Sarawak elections this year would likely see more contracts being awarded to homegrown Sarawakian contractors as most jobs in the state were usually awarded to them.
“We expect more construction jobs to be dished out moving closer to the polls. We believe that most of these jobs will centre on basic infrastructure in rural areas to ensure continued political support,” OSK said.