Tough times for small builders

  • Business
  • Thursday, 03 Mar 2005


WITH construction jobs, especially government projects, hard to come by these days, some industry players are reeling under near bankruptcy while others have emerged stronger by venturing overseas and into other value-added activities to sustain their operations and earnings. 

Since the Government has been holding back spending on infrastructure projects in the last 12 to 18 months, many construction companies, especially small- and medium-sized players that are overly-dependent on government projects, have been severely affected. 

Many of them are waiting for the tabling of the Ninth Malaysia Plan (9MP) to bring some cheer to the industry. 

According to Master Builders Association Malaysia (MBAM) president Datuk Goh Chye Koon, having gone through three consecutive quarters of negative growth, the construction sector was already in a recession. 

Bank Negara, in its report on gross domestic product growth for the fourth quarter of 2004, said the construction sector recorded a 3.3% decline during the final three months of last year. The sector was down 1.7% and 3% in the second and third quarters respectively. 

“Hopefully, the Government will do something under the 9MP to lift the gloom facing industry players during the current bad patch. With more than 60,000 contractors, we have a huge unused capacity that can be put to good use to create the multiplier effect for the economy and other supporting industries,” Goh told StarBiz

On the other hand, the big boys of the industry, which have stronger financial position and the capability to compete overseas, have grown into world-class players after they answered the Government’s call to look beyond Malaysia for jobs. 

In the last two to three years, main players including GAMUDA BHD, Road Builder Holdings (M) Bhd and IJM Corp Bhd have turned their attention overseas to beef up their construction order-books. Other smaller companies such as MUDAJAYA GROUP BHD, BINA PURI HOLDINGS BHD and WCT Engineering Bhd have also gone international and are today stronger players because of this exposure. 

Gamuda is looking to secure RM1.5bil worth of overseas contracts and have submitted bids for projects in West Asia, India, China, Indochina and Taiwan. Road Builder and IJM are also well-known construction names overseas especially in India, the Middle East and other regional countries. 

By competing against the industry’s best from around the world, these groups have built up their stamina in terms of financial capability, technical expertise and competitive prowess. 

While going global can help sustain the potential income of these companies, the competitive bidding and potential cost overruns mean the margins for these overseas projects are rather thin. 

An analyst with a local brokerage said that to offset the volatile nature of the earnings from construction jobs, industry players should also look into other sources of income and beef up their non-construction activities. 

Quite a number of them have in fact ventured into property development in a big way. Other ventures include toll-road concession, and port and power generation. 

Gamuda, through its property development arm Gamuda Land Sdn Bhd, still has RM3.1bil gross development value of properties to be launched that would drive property earnings up to 2010. 

The group also has a big exposure to toll-road concessions, with about 100km of highway – the largest network among toll expressway concessionaires. Contributions from Lebuhraya Damansara-Puchong, Shah Alam Expressway and Sprint are expected to remain robust due to strong traffic growth. 

Road Builder unit RB Land Holdings Bhd is making good headway in the property sector with its flagship Seremban 2 project moving into more upmarket products and commercial units. In toll operations, it holds the concession for Sungei Besi Highway and New Pantai Highway. 

Building contractor Lau Mun Cheong said many construction companies had found consolation in property contracts, especially in building houses. 

“Previously, government contracts contributed to 50% of the total contracts awarded and the building of property projects made up the balance. However, property projects have become increasingly important and have breached the 55% mark,” he said. 

Lau, the executive director of Sekimas Holdings Sdn Bhd, urged the Government to reinstate the year-long incentives granted to property buyers, which expired on May 31 last year, to provide further reprieve to the construction industry. 

“In the absence of government projects, the performance of the construction industry now hinges on new contracts from the housing sector and it will certainly save the day for many contractors if more housing projects are built to cater to the strong demand,” he said. 

 IJM :  [Stock Watch]  [NewsROADBLD :  [Stock Watch]  [NewsGAMUDA :  [Stock Watch]  [NewsRANHILL :  [Stock Watch]  [NewsAZRB :  [Stock Watch]  [NewsWCT :  [Stock Watch]  [News]

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