PETALING JAYA: The prospects of the construction sector remains bright in Sarawak following more development projects in the pipeline, says MIDF Research.
The state government is projecting a capital injection of RM100bil by 2028 in its efforts to achieve a developed economy status.
“About RM64bil will come from the state’s annual budget, while the state’s energy development company Sarawak Energy Bhd is expected to pump in about RM40bil up to 2026,” said the research house in its note to clients.
This is a conservative estimate by Sarawak as the state’s budget averages about RM10bil annually, said MIDF Research.
In addition, investments that would involve several billion ringgit from Japan-based Sumitomo Corp and South Korea-based Samsung in the state’s first hydrogen plant, are expected to begin construction this year, said the research house.
Sarawak is also focusing to look into “sick projects” that were delayed or abandoned.
MIDF Research said this would mean more infrastructure works are expected to be rolled out in the state.
“About 84 sick projects have been identified in Sarawak and among action plans to tackle them are to appoint rescue contractors.
“This could suggest that a number of projects would be retendered – a good opportunity for construction players to replenish their order books,” said the research house.
At the same time, Sarawak remained committed to reimplement projects shelved in 2018.
The research house said tenders for the state-funded second trunk road, which spans 225km, are expected to be called this year, with seven work packages.
“There will be seven more packages next year,” it said, adding that the entire project is estimated at RM5.84bil.
Another closely watched plan is the post Covid-19 development strategy where Sarawak has committed RM63bil for various efforts such as to develop basic infrastructure, namely roads and bridges, water and electricity supply, and telecommunication network.
In June, the state government had said that 7,530km of new roads would be built to connect all rural areas, while 3,487km of roads must be upgraded or rehabilitated.
“This would translate into strong job flows over the long term,” said MIDF Research.
On Tuesday, Sarawak premier Tan Sri Abang Johari Tun Openg said the state government is finalising a programme to assist construction players, which will focus on the prices of raw materials.
“While this is not a massive headwind for most of the companies under our coverage, this is a much-welcomed move for the industry in mitigating the downside risks,” the research house noted.
MIDF Research reiterated its positive recommendation on the construction sector with the encouraging developments in Sarawak. Its top “buy” picks for the Sarawak-themed play include Cahya Mata Sarawak Bhd (CMS) with a target price (TP) of RM1.37 and KKB Engineering Bhd with a TP of R1.50.
CMS is the sole cement manufacturer in the state while KKB, an associate company of CMS, is involved in civil construction and steel-related manufacturing.
The Sarawak Economic Development Corp (SEDC) holds 10.7% in KKB through a private placement in December 2021.
“KKB aims to leverage on this and make use of the competitive strength of both KKB and SEDC to expand and tap into the vast business opportunities in Sarawak,” added MIDF Research.
The research house also favoured CMS and KKB for their strong balance sheets and net cash positions of RM100.6mil and RM181.6mil respectively.
Both companies have headroom for the required financing to take on infrastructure projects, it noted.