Construction to see eight Pan Borneo contract awards?

Construction sector

Maintain overweight: The remaining eight Pan Borneo Highway work packages worth around RM10 billion will be awarded this month, according to a news report. It seems 16 companies are vying for the packages of the RM16 billion Sarawak stretch slated for completion by 2022. The news is in line with our recent report that the eight packages could be announced as early as mid-July. We understand that 13 pre-qualified companies and consortia are bidding for the remaining eight packages worth an average of RM1.5 billion each, stretching 60km to 90km.

Four packages have been awarded since April last year with works reaching the 5% mark. For the remaining packages, we like the chances of the joint ventures of KKB Engineering Bhd-WCT Bhd, Cahya Mata Sarawak Bhd-Bina Puri Holdings Bhd, Naim Holdings Bhd-Gamuda Bhd and Ikhmas Jaya Group Bhd-Titanium. Other notable companies eyeing the remaining packages include Sunway Construction Group Bhd, IJM Corp Bhd and Malaysian Resources Corp Bhd. According to the report, construction costs of the toll-free highway will be financed by a RM13 billion sukuk by DanaInfra Nasional Bhd with a further RM5 billion from the state’s development expenditure.

The sukuk will be issued in two batches in August and September. Including the Sabah portion, the entire Pan Borneo Highway costs RM29 billion. Lebuhraya Borneo Utara Sdn Bhd is the project delivery partner (PDP) for the Sarawak portion, while Borneo Highway PDP Sdn Bhd is the PDP for the Sabah portion worth roughly RM12.8 billion. UEM MMC Joint Venture Sdn Bhd has a 40% stake in the latter PDP.

Following a slow first half (1H), we expect construction tenders/awards to dominate in the 2H, driven by big infrastructure projects such as the Pan Borneo highway, Mass Rapid Transist 2, Light Rail Transit 3, Sungai Besi-Ulu Kelang Elevated Expressway and Damansara-Shah Alam Elevated Expressway. The construction sector’s mid- and long-term prospects will be supported by major projects such as Bandar Malaysia, Tun Razak Exchange, Bukit Bintang City Centre, the Gemas-Johor Bahru double track, and the Malaysia-Singapore high-speed rail. — AmInvestment Bank, July 19

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This article first appeared in The Edge Financial Daily, on July 20, 2016. Subscribe to The Edge Financial Daily here.