Malaysian builders to gain from PM’s India visit

KUALA LUMPUR: The spotlight is expected to fall on Malaysian construction firms when Prime Minister Datuk Seri Najib Razak leads a 200-member entourage for a five-day visit to India beginning tomorrow.

Analysts said Malaysian contractors had the first-mover advantage among foreign builders in India due to the Malaysian entities’ early presence and good track record in the South Asian country’s construction sector.

“We think the Malaysian construction boys stand to benefit from this PM’s visit, which is just two weeks after an Indian official’s visit to Malaysia, offering US$20 billion (RM67 billion) of road projects over the next six months,” Maybank Investment Bank (Maybank IB) analyst Wong Chew Hann wrote in a note to clients.

She foresees Najib’s visit will result in government-to-government (G-to-G) support for Malaysian investments in India’s highway projects.

Najib, who will be accompanied by officials from the public and private sectors, is scheduled  to witness the signing of several agreements and memoranda of understanding involving the corporate fraternities.

India plans to develop 50,000km of roads, an initiative which involves an investment of over US$66 billion. It intends to award US$20 billion worth of jobs by June this year to achieve its target of constructing 7,000km of roads a year, or 20km a day.

Malaysian contractors have completed RM6 billion worth of road projects in India as at June 2009, while the value of ongoing jobs comes to RM1 billion, according to Wong, who cited updates by Malaysia’s Construction Industry Development Board.

While Malaysian builders had flocked to India in the early- to mid-2000s, most have since exited the country due to stiff competition. The two significant remaining ones are IJM Corp Bhd and Sunway Holdings Bhd.

IJM, the first Malaysian contractor in India, had clinched its first job there in January 1998. It has since completed slightly above RM1 billion worth of projects while about 30% of its RM3.6 billion outstanding order book comprises jobs in India.

IJM had led a Malaysian G-to-G-backed consortium to complete the Tada-Nellore Highway in 2003. Sunway,  meanwhile, has completed about RM980 million worth of jobs in India, while outstanding jobs in the South Asian country total RM180 million.

Maybank IB, which maintained its overweight call on the Malaysian construction sector, has put its hold call for IJM shares under review with a target price of RM4.50. The research house reiterated its buy call on Sunway, WCT Bhd  and Gamuda Bhd.

Shares of Sunway are deemed fair value at RM1.90, said Maybank IB, which has target prices of RM3.30 and RM3.80 for WCT and Gamuda, respectively.

This article appeared in The Edge Financial Daily, Jan 18, 2010.


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