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Tuesday, October 19, 2010

Major projects under Budget 2011 will drive demand for building materials

The slew of construction projects listed in Budget 2011 will drive up demand for buildings materials. —AP

PETALING JAYA: The construction sector emerged as the clear winner from Budget 2011 but a rally in the past months means stocks valuation are no longer cheap and the risk is higher.

The smart money call is on the building material suppliers, from steel makers to cement producers, analysts said.

“We expect more positive news flow in the coming months for the construction sector,” MIDF Research said in a note yesterday, predicting a slew of project roll-outs and tender awards in the coming months.

While the question of who will bag what remained unanswered, analysts said the sheer number of upcoming construction jobs out there would drive up demand for building materials.

Malaysia Iron and Steel Indsutry Federation (MISIF) president Chow Chong Long said there was enough capacity in the country to meet the anticipated increase in demand for construction steel bars and other products.

“We don’t foresee steel shortages if the construction projects listed in Budget 2011 are implemented next year,” he said in a SMS reply to a StarBiz query.

He noted that steel factories in the country were currently running at about half their installed capacity.

“MISIF does not expect steel demand to increase until the middle of next year as it usually takes up to six months for projects to take off from the date they are awarded,” Chow said.

On Friday, Prime Minister Najib Tun Razak announced that a number of multi-billion ringgit projects would start construction next year.

This includes the RM40bil mass rapid transit system in Kuala Lumpur, six highways, the RM26bil KL International Financial District and a plan for an iconic 100-storey tower by Permodalan Nasional Bhd, on top of smaller builds such as rural roads, schools and hospitals.

Most of the big projects were already made known prior to last Friday because they were part of the 10th Malaysia Plan, or the Economic Transformation Programme.

Hence, it was not really a big surprise for the market when the projects were announced in the budget.

“These construction and infrastructure projects would require a lot of steel bars and cement,” BIMB Securities head of research Rosnani Rasul said yesterday.

“We are comfortable to retain our forecast 7% growth in cement demand in 2011,” she added. Among potential beneficiaries are Lafarge Malayan Cement Bhd and YTL Cement Bhd.

Shares in bigger construction groups Gamuda Bhd, IJM Corp Bhd, MMC Corp Bhd and WCT Bhd declined yesterday, largely in sympathy with the FTSE Bursa Malaysia KL Composite Index’s (FBM KLCI) 9.16 points drop yesterday to 1,480.70 points.

The few big gainers yesterday included Ann Joo Resources Bhd, a steel maker rated as a “buy” by AmResearch and BIMB Securities.

“We expect significant gains for the steel sector, which is a cheaper entry for leverage to the Malaysian infrastructure theme,” AmResearch analyst Mak Hoy Ken wrote yesterday.

Mak’s top pick for the steel sector is Ann Joo. The stock yesterday climbed 14 sen, or 4.7%. to RM3.12 – its highest level since January.

Specialisation may help smaller firms stand out from the pack and MIDF Research sees pre-cast concrete manufacturer MTD ACPI Engineering Bhd as a potential beneficiary.

In the budget, the Government forecast its development expenditure would drop 9% to RM49.2bil in 2011, and the slack in spending to be taken up by the private sector.

One of the key aspects of infrastructure development hinges on the success of the implementation of public-private partnership (PPP) projects.

But given the lack of clear details, “much (uncertainty) still lingers on issues like execution of these projects,’’ Inter-Pacific Research head Anthony Dass noted in his report yesterday.

By The Star

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