Construction: Transforming Penang

Construction sector
Recommend overweight:
The Edge weekly reported that the Penang government is mulling over RM8 billion worth of projects to enhance connectivity within the state, apart from resolving its traffic woes.

At the forefront is a third link that involves an underground tunnel from Gurney Drive to Bagan Ajam on the mainland. The 7km-long tunnel is roughly a third of the span of the second Penang bridge. It is estimated to cost around RM5 billion.

The second project involves building an underground tunnel from Gurney Drive to Jelutong Expressway. The third is an alternative road connecting Gurney Drive right up to Batu Feringhi. The state government is considering calling for request for proposals (RFPs) by the end of this year, ahead of the targeted commencement of these projects towards end-2012.

We gather the Penang government aims to rope in private sector participation to spur these projects. These proposals may involve a land swap in return for constructing the infrastructure. Thus far, we gather that a slew of foreign companies have expressed their interest in the projects. They include two from China (Beijing Construction Group and CITIC Group), a Singapore company and another two from South Korea, including SK Group.

Similarly, theSun daily reported that the Penang government might issue an RFP for the development of an integrated waterfront and seaport in George Town, where the Swettenham Pier is located. Under the deal, the state government is planning to transform a 14,000 sq m area around the new cruise terminal complex that was completed in November 2009 for RM65 million. This would encompass the old Swettenham Pier building and an extension where a tourist arrival and wharf for large ships and ferries are sited.

The project is expected to complement a RM351 million job to deepen the northern section of the Penang Channel from 12m to 15m that has been delayed for more than a year. It was originally scheduled to take 18 months to complete.

We remain neutral on this development for now. First, these proposals are still at the initial stages pending the issuance of the RFPs. Secondly, the financial viability of the projects involving land as payment-in-kind remains uncertain at this juncture.

For instance, we gather that the proposed Second Outer Ring Road that involved a land swap has yet to take off due to the large amount of capital required upfront — the project's cash flow would likely be negative during its first three to five years. Third, we gather that the RM5 billion third link in Penang may still need federal approval, as the tunnel would be built across Malaysian waters.

Should some of these proposals involving reclaimed land take-off, we reckon Benalec Holdings could be a main beneficiary due to its rising status as an integrated marine engineering specialist. Benalec could either bid for projects on a cash basis or via its unique business model of reclaiming land in return for some of the prime seafront land in Penang. — AmResearch, Sept 20

Looking for properties to buy or rent? With >150,000 exclusive listings, including undervalued properties, from vetted Pro Agents, you can now easily find the right property on Malaysia's leading property portal EdgeProp! You can also get free past transacted data and use our proprietary Edge Reference Price tool, to make an informed purchase.