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Tuesday, June 23, 2009

Malaysian builders set for 'fat years'

Malaysian construction stocks including Gamuda Bhd, IJM Corp and WCT Bhd are set to benefit from several “fat years” as the government accelerates a slew of development projects, Maybank Investment Bank Bhd said.

Prime Minister Datuk Seri Najib Razak is yet to award RM12 billion (US$3.4 billion) of contracts from two stimulus packages, Wong Chew Hann, a Kuala Lumpur-based analyst at Maybank, said in a report today. The first-quarter economic slump of 6.2 per cent underlines the need for faster project implementation, Wong said.

“The momentum of awards for construction jobs should quicken,” Wong said in the report, reiterating an “overweight” rating on the industry. “Tenders and awards ought to lift the valuations of construction stocks.”

The rollout of all outstanding contracts has the potential to trigger Malaysia’s first building boom since the Petronas Twin Towers and the Kuala Lumpur International Airport projects before the 1997-1998 regional financial crisis, Maybank said. Steelmakers, property developers and construction stocks are already among the year’s top climbers on the nation’s main index.

IJM, helping to build a tunnel for an interstate Malaysian water project, has almost doubled in 2009 and is the second-best performer on the Kuala Lumpur Composite Index. Gamuda, jointly building a railway in the north of Malaysia, has surged 33 per cent. WCT has jumped 27 per cent.

The government may hand out infrastructure projects valued at between RM8 billion and RM10 billion this year, followed by a similar total in 2010, Bank of America-Merrill Lynch said today after meeting executives at IJM and Gamuda.

More Spending

“The government will continue to spend, spend and spend,” Melvyn Boey, a Singapore-based analyst at Bank of America- Merrill Lynch, said in a report. Contracts awarded in the next 12 months to 18 months will have a “big multiplier effect” on the economy, Boey said.

According to Maybank, the funds from Najib’s two stimulus packages will coincide with the acceleration of spending under a five-year government industrial plan, devised before the current crisis, which stretches through 2010. Najib has an additional RM103 billion, almost half the entire allocation, to spend before the end of next year, Maybank said.

The biggest projects due by the middle of 2010 are the remaining components of a water-transfer project in central Malaysia, already partly awarded to IJM, that are probably worth a combined RM6.2 billion, Maybank said.

The government will also award a RM2 billion contract to build a low-cost terminal at Kuala Lumpur’s airport, and order an extension to a railway network in the Klang Valley surrounding the Malaysian capital, a job that might be worth as much as RM10 billion, the bank said.

Najib, who came to office in April and inherited the government’s smallest majority in more than 50 years, probably has only a 12-month window to implement the biggest projects in order to strengthen the economy before the next general election, due by 2013, Maybank said.

By Bloomberg

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