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Monday, May 4, 2009

Sarawak emerges as a powerhouse

The long-unsettled Bakun hydro-electric dam project, for undersea transmission of electricity to the peninsula or be grid-guided within Sabah and Sarawak only, was recently decided on by the newly formed Cabinet.

Electricity will be transmitted to the peninsula from Bakun in Sarawak through cables on the sea bed as well as to Sabah, according to Energy, Green Technology and Water Minister Peter Chin Fah Kui.

The project will create considerable construction activity in Sarawak. While civil works are ongoing in the dam area, the upcoming submarine cable project is estimated to cost about RM9bil.

In a report last week, OSK Research noted that the decision meant the land-based transmission network would also proceed, a RM3bil project for which Malaysian Resources Corp Bhd (MRCB) could be a leading contender. The group is reputedly one of two major power transmission players in the country.

It is noted that MRCB is forecast to be valued at a price/earnings ratio of 160 times this year’s estimated earnings and 63 times next year’s at its share price of RM1.03. That also valued the group, which is developing Kuala Lumpur Sentral, at a price-to-book ratio of 1.5 times.

The Bakun undersea transmission project also revives the prospects for Leader Universal Holdings Bhd’s joint-venture company, UCS Holdings Sdn Bhd.

Leader said in December that it had exchanged its shares in Universal Cable (Sarawak) Sdn Bhd for shares in UCS which is being prepared for an initial public offering.

UCS’ principal business is in the manufacture of electrical wires and cables and the sub-contract of power and transmission-related works. It is believed that UCS was set up with the Bakun transmission project as its objective.

While the ongoing Bakun project is a boost for construction activity in Sarawak, it is expected that there will be a lot more works in the coming months.

In the past couple of months, at least three local brokerages reported they expected an acceleration in the award of construction jobs as the Government seeks to offset the current weakness in other sectors.

In a report last week, Maybank Investment Bank said it expected “a synchronised upturn” of fiscal stimulus programmes and Ninth Malaysia Plan spending. The funds are now available as RM30bil of Malaysian Government Securities have been issued to date.

Maybank Investment Bank also observed that among the states, Sarawak had the largest allocation under the second fiscal stimulus. Political analysts noted that Sabah and Sarawak had become politically important states.

The rollout of projects in these two states will provide opportunities for home-grown contractors such as Cahya Mata Sarawak Bhd, Naim Holdings Bhd and Hock Seng Lee Bhd. They have an advantage in being more familiar with the local landscape and people.

HLG Research said in a report that they would benefit from higher funding allocation and restricted tender policies adopted by these states.

Notwithstanding that, it is noted that contractors based in the peninsula have also been able to secure sizeable jobs in Sabah and Sarawak, and these players include WCT Bhd, Muhibbah Engineering Bhd and TRC Synergy Bhd.

Construction is a constantly cyclical industry as the weak domestic sector showed in recent years. Over the next two years, however, this will be a busy period for contractors in their home market.

By The Star (by C.S Tan)

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