- Development spending is 13% higher at RM260bil. Under the 11th Malaysia Plan (11MP), a sum of RM260bil has been allocated for development spending over the next five years (i.e. 2016-2020). This represents a 13% increase from the RM230bil allocated under the 10MP. During this period, the government has pencilled in a growth of ~10% p.a. for the construction sector.

- Key project highlights: Several key infrastructure projects announced earlier continue to anchor the fresh allocation for development spending over the next five years. They are:-

(i) Klang Valley MRT 2 (Sg.Buloh-Selayang-Putrajaya);

(ii) Klang Valley LRT 3 (Bandar Utama-Klang);

(iii) KL-Singapore High Speed Rail;

(iv) Five new power plants with a combined capacity of 7,626MW;

(v) New highways outside Klang Valley (i.e. Pan Borneo Highway, Central Spine Road, Kota Bharu-Kuala Krai); and

(vi) Expansion of water & sewerage networks.

- Public transport & water/sewerage among the key features: As per our sector update on 19 May 2015, the 11MP provides fresh impetus for newsflow on projects, and lifts the order book prospects of Malaysian contractors. We continue to advocate a bottom-up approach in screening potential beneficiaries of the 11MP.

Not surprisingly public infrastructure projects – namely the Klang Valley MRT and LRT projects – will be a key feature under the 11MP. We foresee the MMC-Gamuda JV as the frontrunner to bag the tunnelling contract for the upcoming MRT2 line, as it has the edge of being the Project Delivery Partner (PDP) for both the MRT 1 & 2 lines. As for the LRT 3 project, we think that MRCB-George Kent JV is a strong contender for the PDP contract (which is likely to be awarded in June) given their combined experience in rail works and MRCB’s experience in managing the KL Sentral Transport Hub. Plans are also afoot to upgrade last-mile connectivity to Port Klang through an upgrade of the Westport-Northport rail route (including an upgrade of critical stretches on road) and an expansion of the Padang Besar Terminal in Perlis.

We also like Econpile and Kimlun’s chances in bagging some contracts for the upcoming rail-related works, given their requisite strengths in piling and tunnel lining works, respectively. We however believe it is still too premature to turn constructive on the KL-Singapore HSR, as the deadline for completion was reportedly pushed back to beyond 2020.

Apart from Langat 2, the 11MP is focused on ramping up new water treatment plants (WTP) or upgrading existing facilities in states where water reserve margins are low (i.e. Kedah, Selangor, and Negeri Sembilan). Potential job flows include the upgrading of Kulim High Tech Industrial Park (Kedah) and Batu Kitang WTP. Similarly, the rationalisation of 3,000 small sewerage treatment plants (STPs) into regional/centralised units and formation of a National Sewerage Master Plan could kick-start a new wave of sewerage jobs. JAKS Resources could be a candidate within this space.

The five new plant-up programs highlighted above include three coal-fired units in Johor, Perak and Negeri Sembilan, as well as another two gas-fired plants in Penang and Johor. However, apart from its estimated cost of RM28mil, details remain sketchy for now. As for rural infrastructure, we expect integrated transmission line specialist Sarawak Cable to continue benefiting from more jobs to electrify Sarawak’s interior.

While not exclusively mentioned, we expect some jobs to come out from the Sarawak portion of the RM27bil Pan Borneo Highway; home-grown Hock Seng Lee is a potential beneficiary. Outside the scope of 11MP, we once again see Gamuda as a favourite to land the PDP role for the RM27bil Penang Transport Master Plan (results due next month).

Source: AmeSecurities Research - 22 May 2015