Recently, we made a study trip to East Malaysia covering Kota Kinabalu, Kuching, Bintulu including the Samalaju Industrial Park to investigate the progress of ongoing developments as well as potential prospects in the above-mentioned cities. During our trip, we visited key players for meetings with their management and conducted site visits to Borneo Highway PDP, SURIA, GBGAQRS, Sarawak Energy, CMS, NAIM, KKB, BIPORT, SERBA, PMETAL, and OM Sarawak. On the Pan Borneo Sabah highway which consists of 35 work packages in total, we foresee delay in the execution due to lingering issues like land acquisitions, relocations, and work coordination. As for updates on the Sarawak Pan Borneo highway; it is currently progressing with more traction at an overall progress of c.35% which we deem to be encouraging for a mega project with limited resources and logistic challenges. An interesting observation we gathered during our trip to Sarawak is the state government’s support in growing their local companies. Hence, we believe that local Sarawak players like Sarawak Energy, BIPORT, HSL, CMS, NAIM, and KKB could benefit from Sarawak state government’s effort in improving the livelihood of Sarawakians. It was also highlighted in today’s news that the Federal government will take over Pan Borneo from the existing PDP. We believe that it would have minimal impact to the existing work package contractors for Pan Borneo Sarawak as most of the work packages are awarded and progressing well, but it could further impact the timeline for Pan Borneo Sabah as it some of the work packages are not awarded yet.

Recently, we made a study trip to East Malaysia covering Kota Kinabalu, Kuching, Bintulu and also the Samalaju Industrial Park to observe the progress of on-going developments and potential prospects. During our trip, we visited key players for meetings with their management and site visits to Borneo Highway PDP, SURIA, GBGAQRS, Sarawak Energy, CMS, NAIM, KKB, BIPORT, SERBADK, PMETAL, and OM Sarawak.

Sabah, Land Below the Wind. As we boarded our flight from Kuala Lumpur to Kota Kinabalu in the early morning, we could not help but noticed that our flight was packed with limited space to even store our hand-carried luggage. Kota Kinabalu International Airport’s (KKIA) is known to be the busiest airport after Kuala Lumpur International Airport (KLIA) and Kuala Lumpur International Airport 2 (KLIA2) due to strong tourism activities. To recap, KKIA handled passenger traffic movement of c.8.0m (Domestic: c.68%, International: 32%) back in 2017. During our journey from KKIA to Borneo Highway PDP’s Kota Kinabalu Outer-Ring Road Regional site office located in the Sepangar area, we noticed that the opposing traffic heading into town in the early morning was highly congested, reemphasizing the need for infrastructure projects like Pan Borneo Sabah. After concluding our visit to Borneo Highway PDP, SURIA and GBGAQRS’s site, we came back with mixed feelings for the development in Sabah. While we see strong development potential in the tourism sector that would benefit SURIA and GBGAQRS’s development in the Jesselton area which is crowded with Chinese tourists, the development of infrastructure, i.e. road and ports; in Sabah remains challenging as it requires much focus, attention and assistance from relevant parties. To illustrate, projects like Pan Borneo Sabah has only achieved progress of 11% for the 12 on-going work packages that was awarded to local contractors such as: (i) first letter of award issued in June 2016 for work packages WPC05 and WPC15, (ii) WP06 in December 2017, (iii) WP07 in December 2017, and (iv) WP08 in March 2018. We foresee delays in the execution of Pan Borneo Sabah highway underpinned by issues like land acquisition, relocations and work coordination given that it comprises 35 work packages in total.

Sarawak, The Land of Hornbills. While Sarawak is named The Land of Hornbills, we name it The Land of Opportunities. This is largely due the state government’s allocation of RM11.0b to be spent on the infrastructure works like coastal highway (RM6.0b), water supply (RM2.8b), electricity connectivity projects (RM2.3b) and other projects over the next two years. During our ground visit in Kuching and Bintulu, we can feel the excitement from the local contractors which we visited i.e. CMS, NAIM and KKB as they are all geared-up to participate in the open tender for the above-mentioned projects, especially for the coastal highway project. Many contractors are vying for the impending awards from the state-funded mega infrastructure project given softer construction landscape in the peninsular whilst early work packages are expected to be awarded in coming weeks, according to an industry source (source: StarBiz). Currently, Sarawak Pan Borneo highway is progressing with more traction at an overall progress of c.35% which we deem to be encouraging for such mega project with limited resources and logistic challenges. Another interesting observation that we made during our trip to Sarawak is the state government’s support in growing their local companies. Hence, we came back feeling reassured with the prospects in Sarawak as we believe that the Sarawak state government possess the will to implement the above-mentioned infrastructure projects that is set to improve the livelihood of Sarawakians.

We think Sarawak plays within our coverage such as HSL (UP, TP: RM1.25) is poised to ride on the state mega infrastructure project. HSL’s Managing Director recently made a statement that the company is eyeing for jobs in both coastal road and trunk road projects as well as the state water grid (source: StarBiz). We think investors should accumulate on price weakness as we anticipate more news flow and clarity on the projects award in the 1H19, to perk up positive sentiment and share price going forward.

Source: Kenanga Research - 21 Mar 2019