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Thursday, January 17, 2008

Malaysia's infrastructure spending set to quicken pace

Macquarie expects all the major construction companies to achieve better returns on equity this year as 9MP jobs are carried out

MALAYSIA may spend its money faster this year to build infrastructure like railways, water treatment plants and flood mitigation projects, says Macquarie Research.

"Given the significant amount of infrastructure jobs worth about RM89 billion yet to be awarded under the Ninth Malaysia Plan (9MP), privatised and private finance initiative (PFI) basis, and with the general elections likely in 2008, we expect the infrastructure spending to accelerate significantly this year," it said in a report on January 10.

This should result in a healthy growth rate for the construction industry for the next two to three years when these jobs are actually executed, it added.

It believes the jobs in focus will be those that directly impact the masses.

It noted that several high-value ones are already in various stages of bidding. These include the RM8 billion Pahang-Selangor water transfer project, RM9 billion Bakun undersea cable and overhead transmission project, and RM1.2 billion Penang Outer Ring Road project - all of which are likely to be awarded this year.

The blueprint for the Sabah and Sarawak economic growth corridor is also likely be announced before the general elections, around the first quarter of 2008, it said.

It expects all the major construction companies' returns on equity, estimated to be higher last year than in 2006, to improve further this year as 9MP jobs are carried out and higher profits made.

Macquaries' top stock pick in construction is Gamuda, which it believes will see significant earnings upgrades in the coming months. It also likes IJM and is positive on smaller stocks such as Naim Cendera and Zelan.

It has a 12-month target price of RM6.80 for Gamuda, RM9.85 for IJM, RM6.70 for Naim Cendera and RM7.75 for Zelan.

By New Straits Times (by Adeline Paul Raj)

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