1. The fact that the latest mega projects are driven by world-class Chinese contractors (and Chinese funding) which probably leaves the local contractors with only low-value/low-margin supporting roles in the projects; and
2. The fact that given the still elevated national debt, the government has no choice but to remain steadfastly committed to fiscal prudence which means the revival of the ECRL project could be a “zero-sum game” as it impedes the government’s ability to implement other public infrastructure projects.
1. Apparently, the reported price hike has yet to be made official, as certain key construction players have not received any notification from Lafarge Malaysia/YTL Cement on the price hike. Certain observers believe a price hike of this magnitude, if it happens, is likely to attract intervention from the government/regulators, and the price hike is more likely to be implemented gradually or in stages to lessen the negative impact along the supply chain;
2. A 50% hike in cement prices will translate to roughly a 30% rise in the price of ready-mixed concrete (RMC) (construction projects do not use cement directly, but use RMC which is a ready mixture of water, sand, aggregate, cement, etc. There is also the element of transportation cost in RMC); and
3. Depending on the project type, RMC as a percentage of total construction cost ranges from as low as low singledigit to 30%. Typically, high-value construction jobs (such as a “Grade A” office building job) have low RMC content (as a percentage of total cost) as RMC cost is dwarfed by much higher-value fit-out and mechanical & electrical (M&E) works. One the other hand, affordable housing has high RMC content (as a percentage of total cost) given its very basic design.
4. As such, a 50% hike in cement prices could shave construction margins by as low as 1 percentage point (ppt) to as high as 9ppts.
1. Piling contractors: Typically, RMC makes up about 20% of total construction cost. The number could go up to as much as 30% if reinforced concrete (RC) structures are used;
2. Low-cost housing contractors: As mentioned, due to the high RMC content (as a percentage of total cost);
3. Manufacturers of pre-cast concrete products: As RHC constitutes about 20% total production cost.
Source: AmInvest Research - 18 Jun 2019
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