Land below the wind

We had a working visit to Kota Kinabalu (KK) recently. Key findings are infrastructure development is accelerating, tourist arrivals are seeing sustained growth, oil and gas investments continue despite weak prices and new large-scale integrated property development projects will transform Greater KK in the long run. Our top construction/property stock picks for exposure to Sabah’s rapid development are Gabungan AQRS (GAQRS) and WCT. Other non rated beneficiaries are Suria Capital and SBC Corp.

Infrastructure development to improve connectivity

One of the key focus for the development of Sabah under the 11th Malaysia Plan 2016-2020 (11MP) is improving connectivity via infrastructure development. Some of the planned projects include the RM12.8bn Pan Borneo Highway (Sabah section) (PBH) and new RM311m KK Bus Rapid Transit (BRT). For the long-term development of the Sabah Development Corridor (SDC), there are plans to build a new KK Airport, Light Rail Transit (LRT) system in KK, upgrade Lahad Datu Airport, build new railway lines to connect north and east coasts of Sabah.

Pan Borneo Highway – a boon for construction

Borneo Highway PDP Sdn Bhd, a Warisan Tarang-UEM Group-MMC Corp joint venture (60:20:20 shareholding), was appointed as the project delivery partner (PDP) for the PBH Sabah project in April 2016. Three packages have been awarded and the remaining packages are targeted to be awarded by end-2017 to ensure the project is completed by March 2021. Potential beneficiaries are Suria-GAQRS joint venture (JV) and WCT, which are bidding for the PBH Sabah project.

Major property development projects planned

A major development taking off is the re-development of KK Port with estimated gross development value (GDV) of over RM5bn comprising One Jesselton (developed by GAQRS-Suria JV), Jesselton Quay (developed by SBC-Suria JV), KK Convention City (developed by Mah Sing) and Sabah International Convention Centre. Suria is also planning to acquire 28.9-acre land at KK Port for about RM350m to develop an International Cruise Terminal as part of the integrated mixed development project. SP Setia is developing the RM2.2bn Aeropod project in Tanjung Aru currently while the state is developing the RM4bn Tanjung Aru Eco Development.

Top BUYs are GAQRS and WCT for Sabah exposure

We believe the rising tourist arrivals and strong demand from local and foreign buyers for waterfront properties will ensure the success of the KK Port re-development project. Construction contract awards for the PBH Sabah will benefit the contractors with established track records and precast concrete product manufacturers in Sabah. For these reasons, our top BUYs for exposure to Sabah are GAQRS and WCT

Source: Affin Hwang Research - 7 Dec 2016