CIMB: Pan-Borneo Highway Sabah contract awards to accelerate post GE14

KUALA LUMPUR (April 18): CIMB Investment Bank Bhd said the pace of awards of the remaining 18 contracts under the proposed Pan-Borneo Highway in Sabah (PBH Sabah) is expected to pick up post Malaysia's 14th General Election (GE14). CIMB said PBH Sabah is seen as an election-driven project in conjunction with GE14, the polling day of which falls on May 9, 2018.

In a note today, CIMB said the remaining 18 contracts under PBH Sabah have a combined estimated value of RM9.7 billion.

"Based on statistics revealed by Borneo Highway PDP (BHP), seven packages of PBH Sabah worth RM3.2 billion have been awarded, leaving the balance 18 packages to be awarded in 2018 (2Q18 onwards), with an estimated value of RM9.7 billion. Based on our channel checks, we gather that civil works packages of PBH Sabah could be worth RM500 million to RM1 billion each, which is roughly similar to the package values of PBH Sarawak.

"As in the case of PBH Sarawak, the tenders for PBH Sabah are not exclusively for Sabah players. This, on the flipside, is positive for Peninsular Malaysia contractors, [who], according to Ministry of Works, would be able to hold a 30% stake in the bidding JV (joint venture) with Sabah players, which will hold a minimum 70% stake in the JV," CIMB said.

CIMB said within its construction universe, Gamuda Bhd, Protasco Bhd and WCT Holdings Bhd are known to be bidding for PBH Sabah. CIMB said Gamuda and WCT Holdings were earlier beneficiaries of PBH Sarawak, after securing RM1.3 billion to RM1.6 billion worth of contracts via their own JVs with Sarawak players.

"We stay sector Overweight, with Gamuda as our top big-cap pick for rail exposure and upside via PBH Sabah. The key sector risk is foreign contractor competition but this is not the case for PBH Sabah," CIMB said. — theedgemarkets.com

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