AmResearch: Construction sector – Overweight (Second north-south link?)

The Government is currently evaluating a proposal to build another highway linking the northern and southern parts of peninsular Malaysia, said The New Straits Times in a report today (March 2).

* Proposed highway is to complement the existing North-South Expressway (NSE) - currently owned and operated by PLUS Expressways Bhd.

* A viability study is being jointly undertaken by the Public-Private Sector Partnership Unit (UKAS) of the Prime Minister’s Department and the Malaysian Highway Authority (MHA).

• Under the proposal, a highway would be built between Banting in Selangor and Taiping in Perak at a cost of between RM5 billion and RM6 billion. Depending on the project’s viability, the highway could later be extended to connect Banting and a town in Johor – believed to be Gelang Patah.

• However, the highway is still at the planning stages. Both UKAS and MHA are currently studying salient details of the project – including projected total rates and traffic volume. The study will also determine any potential leakages that could be incurred by NSE.

• Latest development could trigger renewed interest in the West Coast Highway (WCE) project. We believe this new highway could be part or linked to the existing WCE route – a 250km coastal highway, which also links Banting to Taiping.

• Back in mid-2007, a consortium led by Kumpulan Europlus Bhd (K.Euro) signed a concession agreement to build and toll the WCE highway over a period of 33 years. K.Euro is supposed to have a 60% stake in the consortium, the balance 20% each being held by the respective state governments of Perak and Selangor.

• The estimated construction cost of the WCE was RM3.1 billion. In any case, any fresh interest in WCE would bode well for IJM – which had been touted as among frontrunners for the construction of WCE.

• We maintain our OVERWEIGHT stance on the construction sector – where contract news flows are perking up ahead of the unveiling of the 10th Malaysia Plan (10MP) -likely by the middle of the year. Excluding this potential new highway, we have identified up to RM56 billion worth of select cornerstone projects that could be dished out within the next six to 12 months. Within the sector, our top picks are Gamuda Bhd, IJM and WCT.