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Alliance: Construction sector ‘overweight’ [26-07-2012]  
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More redevelopment projects in Kuala Lumpur are expected due to the increasing scarcity of land, according to Alliance Research.

The research unit said it maintained an “overweight” rating on the construction sector.

“There remains much to be excited about construction than just the Klang Valley Mass Rapid Transit (KVMRT) project,” said Alliance Research in a report.

It noted that recently announced redevelopments included Hotel Equatorial, Bangunan MAS, Crowne Plaza Hotel, Kompleks Antarabangsa and the Dang Wangi LRT (light rail transit) station.

“Contractors with a strong track record in high rise structures in Kuala Lumpur such as IJM Corp Bhd and Crest Builder Holdings Bhd stand to benefit.

Names like WCT Bhd, Mudajaya Group Bhd and Ahmad Zaki Resources Bhd also have ongoing high rise jobs in Kuala Lumpur.”

Alliance Research said there was an increasing trend where owners of existing or old buildings embark on redevelopment projects to enhance the value of their properties.

“Buildings such as Pavilion, Fahrenheit 88, The Intermark (and Doubletree) and St Mary's Residence are all the result of redevelopments.”

Redevelopment projects in the pipeline included the Dang Wangi LRT station, which was the result of a recent agreement between Crest Builder and Syarikat Prasarana Negara Bhd. Alliance Research noted that it would entail a retail podium, SOFO (small office flexible office) and duplex units, office suites and service residences with a gross development value (GDV) of RM1.04bil.

“The management has guided that the tower block will cost RM350mil to RM400mil to build,” said the research unit.

It was also pointed out that the demolition of the 39-year old Hotel Equatorial had recently begun, in order to pave way for a bigger hotel to replace it. “We think the new hotel could cost more than RM500mil to construct.”

Meanwhile, Permodalan Nasional Bhd (PNB) has plans to refurbish Bangunan MAS into Grade-A offices and a new hotel could be built beside it. “Our channel checks with contractors indicate that the new hotel may be worth RM700mil in construction cost.”

Also, Tradewinds Corp Bhd announced that it would redevelop Crowne Plaza Hotel and Kompleks Antarabangsa into four towers comprising offices, service apartments, medical centre and retail space.

The development will be known as Tradewinds Centre, and the construction works would amount to RM2.4bil to RM3bil assuming that construction cost account for 40% to 50% of its RM6bil GDV.

Zelan Bhd could potentially land itself some contracts for the Tradewinds Centre, given its sister company relationship with Tradewinds Corp.”

Other redevelopment projects that have been announced include the Lai Meng School, Plaza OSK, Wisma MPL and Chulan Square.

Also, StarBizWeek recently ran a story on urban redevelopment, and pointed out that such projects would also include the Sungei Besi Airport, which involved the conversion of an airport and its surrounding land into a mixed commercial project where hotels, service apartments and retail commercial space will be incorporated.

“All these redevelopment projects should benefit contractors,” said Alliance Research. Despite the strong contract flows, the Bursa Malaysia construction index has underperformed the FBMKLCI by 9.8% year to date, due to “election risks” given the impending general election.

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