Building muscles in KL-Pumping Iron

As the numbers rolling do not seems to really encourage growth, the government is out to do more.

As such,construction companies are expected to continue to get a shot in the arm and shine in the current year as the government step-ups awards of infrastructure contracts to meet development and fiscal stimulus targets.

Business Times Singapore (24 September 2009)reports that analysts estimate the development spending for this year under the 9th Malaysia Plan would amount to about RM52 billion, increasing to between RM55 billion and RM58 billion next year.

In addition, an estimated RM10 billion of the total RM22 billion set aside for fiscal injection has yet to be awarded.

Because of its big multiplier effect on the economy, the sector is invariably singled out for additional funds.

Earlier this week Prime Minister Datuk Seri Najib Razak said nearly RM8 billion had been paid out to contractors who had completed some 41,000 projects or about half of the total awarded.

The stimulus packages were “on track”, he said, pointing to the construction sector’s growth of 2.8 per cent in the second quarter from 1.1 per cent in the first, as evidence the fiscal injection was beginning to have a favourable impact on the economy.

Because 2010 marks the last year of the 9th Malaysia Plan (2006-2010), the forthcoming national budget scheduled to be tabled in Parliament at the end of October is expected to focus on implementation, given that as at the middle of this year an estimated RM139 billion or only 60 per cent of the RM230 billion allocated for the five-year period had been spent.

Contractors expect the pump to remain open and believe there would be “a flurry of contracts in 2010,” HwangDBS Vickers, which is overweight the sector, said in a report this week.

Maybank IB is also positive, noting infrastructure projects worth some RM33.5 billion under the 9th Malaysia Plan were currently at various stages of being constructed with most expected to continue into the coming 10th Malaysia Plan (2011-2015).

A number of new infrastructure projects have already been earmarked for the new 5-year development plan.

These are likely to exceed RM30 billion and include the electrified double-tracking rail job for the southern portion of West Malaysia, a new light rail transit line linking Kota Damansara to Cheras, and the Pahang-Selangor interstate water transfer project.

However, the pick-up in local construction jobs isn’t the only reason to be positive. Vietnam — where a number of Malaysian builders have invested heavily — has also turned the corner.

Companies like Gamuda and WCT are looking to accelerate their planned billion-dollar mixed-developments to ride on the economic upturn and to cash in on the desire and better purchasing power of young Vietnamese to own a home.

A number of construction stocks have more than doubled year-to-date, including Sunway, Hock Seng Lee, and IJM Corporation.

Even so, the construction bulls noted because “pump-priming remains a cornerstone to drive economic growth” further upside is possible, share prices for some building companies may move upwards on sustainable positive news flow based on new book value.