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Thursday, September 5, 2013

RM86.35b worth of projects may be deferred or shelved: HLIB Research


PETALING JAYA (Sept 5, 2013): Some RM86.35 billion worth of planned rail and construction projects would be delayed or even shelved altogether, said HLIB Research, following a decision by the government to review and rescheduled projects with heavy public sector participation.

However, this amount excludes two mega projects – Petroliam Nasional Bhd's RM62.7 billion refinery and petrochemical integrated development project in Pengerang, Johor, and the 2,000-megawatt coal-fired plant that is estimated to cost RM10 billion.

"Despite the government playing a less prominent role in the construction landscape, a deferment in rollout of key projects will still affect investors' sentiment," it said in a report yesterday.

The research firm is downgrading its call on the construction sector to "neutral" from "overweight".

Earlier this week, the Fiscal Policy Committee (FPC) said all public sector projects will be considered carefully with priority given to jobs with low import content and high-multiplier effects while those with high import components will be sequenced, as the government seek narrow its fiscal deficit gap and bolster shrinking current account surplus.

HLIB Research said the government's fiscal constraints may also affect the decision on the proposed RM40 billion high-speed train connection between Kuala Lumpur and Singapore.

Other rail projects under scrutiny includes the Gemas-Johor Baru electrified double-tracking project valued at RM7 billion, the Serendah-Port Klang-Seremban Freight Line (RM2 billion), the LRT Shah Alam Extension (RM6 billion), Phase 1 of the East Coast Rail Line (RM1 2 billion), the Klang Valley Distribution Terminal (KVDT) upgrade RM850 million and the Subang Skypark rail link (RM1.5 billion).

Meanwhile, the rollout of building projects that are uncertain at this point in time include Menara Warisan (RM5 billion), the Tun Razak Exchange (RM26 billion) and Phase 1 of the KL Metropolis (RM1 6 billion).

Nevertheless, HLIB Research said currently most projects have been largely coming from the private sector namely related to property development.

Most construction companies, it said, have moved up the value chain and property has been a key area for earnings growth, hence a slowdown in the property segment will have more pronounce effect on the construction sector as it will hamper both job opportunities and also property profits.

It added that the government's plans to implement accrual accounting or International Public Sector Accounting Standards (IPSAS) is another reason why it is scaling back on its development expenditure is implementation.

"IPSAS may reflect higher debt levels on the government's books while off-balance sheet items will also be scrutinised. Hence, this will affect projects that involves government support loan and government guarantees.

"Highway projects will mostly be affected due to the risks and higher financing costs involved. In the case of highway privatisation, it may also be reconsidered," it said.

Despite the potential slowdown in both government and private sector jobs, HLIB Research believes that "all is not lost".

"The order book for construction companies remains healthy, supporting earnings visibility for the next two years. For their respective property division, unbilled property sales have also achieved decent backlog to support earnings visibility.

"Hence, we do not see a drastic need to cut earnings forecasts for the construction sector," it added. Its top pick for the sector are IJM Corp Bhd and Sunway Bhd.

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