Construction sector growth to remain slow


  • Business
  • Wednesday, 09 Jun 2004

BY DANNY YAP

GROWTH in the local construction sector will continue to slow this year, although there may be spurts on a quarterly basis, analysts say. 

The signs are already there. In the first quarter the sector expanded at a mere 0.6%, against a 2.7% spurt in the preceding quarter and a 1.2% jump in the corresponding quarter a year earlier.  

An analyst from a foreign research house said all indications point to a slowdown in the construction sector.  

He noted that most Government infrastructure projects had either been awarded or held back, including water and sewerage works. 

“The construction sector's growth this year will definitely be lower than last year's,” he said.  

“There's really not a lot of excitement in the sector.” 

He said although interest in the property sector had risen – especially in landed residential development, which would give the construction sector a boost to some extent – this was not sufficient to stem the downward trend in the construction sector.  

A report from OSK Research showed some construction companies with first quarter earnings below market expectations.  

They included established companies like PLUS Expressways Bhd, Road Builder (M) Holdings Bhd and IJM Corp.  

IJM chief executive officer and managing director Datuk Krishnan Tan told StarBiz that big construction companies, IJM included, could not be sure of securing huge Government infrastructure projects anymore, despite their record. 

“We did get some (big infrastructure projects), but for a construction company of our size the contracts secured would not be sufficient for us to maintain our profit margins. So, we had to expand overseas, to countries like India and the Gulf States in the Middle East,” he said. 

Tan said IJM, which registered a turnover of RM1.3bil last year, had to secure more projects locally or abroad because the giant construction company had a “chewing rate” of about RM100mil a month. And, most of its existing projects were at the tail-end.  

The company secured local projects in the fourth quarter of 2003 and in the first quarter that boosted its order book to RM2bil.  

For the financial year ended Dec 31, 2003 IJM made a pre-tax profit of RM206.8mil on the back of RM1.36bil in revenue. 

Among the new contracts was a RM693mil job to build a toll highway between Kajang and Seremban for Kaseh Lebuhraya Sdn Bhd. 

Of the others, Road Builder secured the RM50mil Alam Warisan (Package 4) project in Putrajaya, and Malaysian Resources Corp Bhd the RM175mil project for the upgrading of the Federal Route 5 from Ipoh to Lumut. 

Tan said: “I believe most large and established construction companies have already expanded their overseas operations, or are in the process of securing more foreign jobs, because they know local projects will be hard to come by. 

“The local construction industry is still facing a tough period; and we should be satisfied if we can maintain our margin and turnover for this year.”  

An analyst from RHB Research said: “The second half of the year could see slower growth compared with the corresponding period last year.”  

He added that, going by recent reports, government support for the sector was unlikely. As part of its efforts to put a cap on the country's budget deficit, the Government has either held back or shelved most large projects. 

The private sector was now expected to play a bigger roll in propping up the construction sector. 

The Finance Ministry's parliamentary secretary, Datuk Hilmi Yahaya, had reportedly said the ministries had spent their allocations too fast, resulting in only RM17bil left for next year. 

Second Finance Minister Tan Sri Nor Mohamed Yakcop, however, subsequently said the Government had RM49.4bil left from the RM160bil allocated under the Eighth Malaysia Plan, and would not face difficulties implementing development plans. 

An analyst commented: “Either way, it appears that support for the sector from the Government will not be forthcoming this year.”  

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