2016-08-20

In the midst of a rather uninspiring economic growth of four per cent in the second quarter of the year (2Q16), the construction sector continues to shine and outperform other  sectors as it registers the highest growth rate of 8.8 per cent.

These statistics – revealed by Bank Negara Malaysia (BNM) during the announcement of the second quarter economic growth on August 12 – also showed that the growth of the construction industry continued to be on the uptrend.

From a growth rate of 5.6 per cent recorded in 2Q15, the construction sector pumped up to 7.9 per cent in 1Q16 and 8.8 per cent in 2Q16.

The central bank observed that the growth in the construction sector was stronger in 2Q16 dominated by the civil engineering sub-sector.

With a series of contracts award in the first half of this year – as well as more coming up in the second half of the year –  the construction sector could emerge as one of the best performing sectors and provide a silver lining to the country’s economic growth this year.

Minister of Works Datuk Seri Fadillah Yusof believed that the industry will sustain its growth rate between eight to 10 per cent in 2016.

“We are expecting growth of between eight and 10 per cent for 2016 driven by infrastructure projects including the Mass Rapid Transit (MRT), Light Rail Transit (LRT) the highway projects in East Malaysia and affordable housing projects.

“Those projects (will) ensure consistent growth in the local construction segment, which will contribute to the country’s economy as well as its people through employment opportunities,” he told the media at the seventh Malaysian Construction Summit 2016 earlier this year.

He outlined that the growth of the construction sector will be driven by government infrastructure projects.

Meanwhile, Knight Frank Malaysia in a recent report on Real Estate Highlights for First Half of 2016 said the construction industry particularly infrastructure-related continued to drive economic growth despite the cloudy outlook for all market sectors.

The report noted a slew of infrastructure-related projects in the country would inevitably shift the focus of future developments and the growth of the real estate industry.

Going forward, some of the government infrastructure projects which could see contract awards over the next few months include the RM9 billion Light Rail Transit Line 3 (LRT3) and more packages of the Mass Rapid Transit Line 2 (MRT2) in the Klang Valley.

Over in Sarawak, the announcement of several packages of the Pan Borneo Highway contracts award a few weeks ago is poised to fuel more construction activities and job momentum for the construction industry in the state.

With increased jobflows, contractors and construction players are expected to be busy over the next few years.

For 2016, the construction industry in Sarawak is projected to grow by 9.7 per cent supported by civil engineering projects particularly from the infrastructure segment.

Accelerating Pan Borneo Highway’s construction

As the construction of the massive billion-ringgit Pan Borneo Highway Sarawak gathers momentum this year, more packages have been awarded recently.

Five packages have been awarded from late July to early August by Lebuhraya Borneo Utara Sdn Bhd (LBU) the project delivery partner (PDP) of the Pan Borneo Highway Sarawak were for the stretches of Pantu Junction to Btg Skrang, Btg Skrang to Sg. Awik Bridge near Saratok, Sg. Awik Bridge to Bintangor Junction, Sg. Kua Bridge near Mukah to Sg. Arip Bridge near Balingian and Sungai Arip Bridge to Bintulu Airport Junction.

Companies receiving these packages were joint ventures between PPES Works (Sarawak) Sdn Bhd-Bina Puri Sdn Bhd, KKB Engineering Bhd-WCT Sdn Bhd, Naim Engineering Sdn Bhd-Gamuda Bhd (Gamuda), Mudajaya Corporation Bhd-Musyati Sdn Bhd and Endaya Construction Sdn Bhd-Trans Resources Corporation Sdn Bhd-Pembinaan Kuantiti Sdn Bhd.

PPES Works, a 51 per cent owned subsidiary of Cahya Mata Sarawak Bhd (CMS) has secured the work package contract for the development and upgrading of the Pan Borneo Highway from Sg. Awik Bridge to Bintangor Junction for RM1.36 billion.

Commenting on the contract award, CMS Group’s managing director Datuk Richard Curtis said it came as credit to  the group’s prudent pricing and margin strategies and to our track record and our extensive local knowledge.

“CMS as a major supplier of many types of construction materials has been gearing up to ensure that it is able to meet the needs of contractors for the highway project,” Curtis told BizHive Weekly through an email interview.

He noted that the scope of work to be undertaken by the joint venture company include earthworks, piling, drainage works, road works, interchanges, bridges and its related mechanical and electrical works.

Curtis estimated that the length of the highway project to be approximately 64.5 km.

He added CMS has several significant projects that the group is actively working on namely the Sarawak Museum Campus and Heritage Trail project and the underpass cum upgrading of Datuk Temenggong Abang Kipali bin Abang Akip Roundabout project.

Besides that, Curtis noted the group has also received a Letter of Intent for the Lawas Hospital project and for the Miri-Marudi road upgrade.

As for the partner of CMS for Pan Borneo Highway project, Bina Puri Group’s executive director Matthew Tee said, “It is one of the major achievement of Bina Puri this year in terms of the contract value of RM1.36 billion.

“The contract award is within our expectations. The entire project will be managed by the joint venture company incorporated between PPES Works (Sarawak) Sdn Bhd and Bina Puri Sdn Bhd.

“The joint venture company will manage the delivery and resources requirement of the project. Priority will be given to local support from Sarawak and will be supported from West Malaysia if needed,” he shared.

When asked on the need of the company to secure funding for the highway project, Tee opined that the joint venture company will partly use internal generated funds and will also explore to arrange the funding partially by bank borrowings.

Both CMS and Bina Puri opined that the highway project is expected to kick-off in September or early October.

Additionally, Tee revealed that another project currently under construction by Bina Puri is the Lembaga Kemajuan Ikan Malaysia’s (LKIM) Fishery Complex in Kampung Tanjung Bako, Kuching and the percentage of work completion as at June 30, 2016 was 84.92 per cent.

To recap, Bina Puri in a filing to Bursa Malaysia in April 2014 said its wholly-owned subsidiary Bina Puri Construction Sdn Bhd has entered into contract agreement with Blessed Builders Sdn Bhd and Pangkalan Ikan Central Sdn Bhd (PIC) for the planning, designing and building of the Fishery Complex at a contract value of RM247.84 million.

The company revealed then that the duration of the project would take 36 months to be completed.



Moreover, Tee observed that Bina Puri had also tendered for other infrastructure-related projects in Peninsular Malaysia such as LRT3, MRT2 and jobs at the Refinery and Petrochemicals Integrated Development (RAPID) at Pengerang, Johor.

As for KKB Engineering Bhd (KKB) and WCT Sdn Bhd’s joint venture, they won a work package for the development and upgrading of the highway project for the stretch from Sungai Arip Bridge to Bintulu Airport Junction for a contract sum of RM1.29 billion.

Commenting on the contract award, WCT Holdings Bhd’s (WCT) managing director Taing Kim Hwa said,”The award is a testament to our strong track record and our expertise and skills set in the engineering and construction sector honed over 35 years.

“The award also establishes WCT’s presence in the significant Pan Borneo Highway project, which is expected to be a game changer for the economies of both Sabah and Sarawak,” he said.

Taing added the award of the Pan Borneo Highway contract will further expand the group’s outstanding order book of RM4.4 billion as at March 31, 2016.

“In view of the challenges in the current macro-economic landscape, public spending in infrastructure development is still strong and this is testament to the resilience of our overall economy,” he noted.

Taing revealed that the scope of work under the contract for the joint venture entity includes civil works such as demolition and site clearance, earthworks, geotechnical works, drainage work, roads and pavings in addition to piling works.

He noted the joint venture entity will also be required to undertake the development of interchanges, bridge works, environmental protection and monitoring, traffic management and control, mechanical and engineering (M&E) and electrical infrastructure works.

“We are looking forward to working together with KKB for the project as this contract is expected to contribute positively to the group’s future earnings and net assets as well as help us in achieving our construction revenue target of RM2 billion this financial year,” Taing believed.

WCT added the joint venture company undertaking the highway project will construct the 66 km dual carriageway roads from Sungai Arip Bridge to Bintulu Airport junction.

With a duration of 51 months for the implementation of the project, WCT estimated that the project is expected to be completed in 2020.

On top of that, filings with Bursa Malaysia showed that the stretch from Pantu Junction to Btg Skrang was awarded to Naim Engineering Sdn Bhd-Gamuda’s joint venture while the stretch from Btg Skrang to Sg. Awik Bridge went to Endaya Construction Sdn Bhd-Trans Resources Corporation Sdn Bhd-Pembinaan Kuantiti Sdn Bhd’s joint venture and the stretch from Sg. Kua Bridge to Sg. Arip Bridge was awarded to Musyati Sdn Bhd-Mudajaya Corporation Bhd’s joint venture.

Interestingly, little known local construction player Musyati Sdn Bhd (Musyati) with its tie-up with Peninsular-based Mudajaya Corporation Bhd has also secured a package of the Pan Borneo Highway project.

A check on Musyati’s web portal showed that some of the ongoing projects being implemented by the company include the upgrading works of Miri Airport, the construction of Jalan Song or Sungai Yong Phase 3 road project in Kapit, construction of Army Camp at Oya, Sibu and the Jalan Poi or Ngemah or Temalat road construction project in Kapit.

The company also exhibited some of the completed projects which include schools such as SK Kapit, SK Taman Mutiara, Unimas Hostel, Batu Kawa Medical Clinic, Sarawak Health Department’s office building and so forth.

Besides that, Musyati was also involved in the redevelopment of Kota Kinabalu International Airport (KKIA), upgrading of Sandakan Airport in Sabah and the expansion of Sibu Airport.

Furthermore, a leading construction company in Sarawak which is also an experienced road builder that has won a package of the highway project earlier this year noted the joint venture company will execute the project in an efficient and timely manner.

It noted the package procured by the joint venture is categorised into three sections, Sibu, Batang Rajang and Julau.

The group revealed that the Sibu Section has commenced on March 16 while the Batang Rajang has started on June 16 and the Julau Section is expected to start work on September 16.

The company believed that due to the size of the project, there will be some additional recruitment of manpower and a modest acquisition of relevant plant and machinery.

It observed that the group has over 30 ongoing projects throughout Sarawak adding that the signficant project the group is working on this year include a range of infrastructure works in the Sarawak Corridor of Renewable Energy (SCORE) region notably at Samalaju.

Earlier on in March 2016, two listed companies made their filings to Bursa Malaysia saying that their respective joint ventures have secured a package of the Pan Borneo Highway project.

Hock Seng Lee Bhd (HSL) told Bursa Malaysia on March 18 that the consortium of HSL-Dhaya Maju Infrastructure (Asia) Sdn Bhd Joint Venture has been awarded a contract for the Pan Borneo Highway Sarawak worth RM1.71 billion while Zecon Bhd revealed on March 10 that the group and its partner Kimlun Corporation Bhd (Kimlun) through Zecon Bhd-Kimlun Sdn Bhd JV has secured a package of the Pan Borneo Highway for the stretch from Serian Roundabout to Pantu Junction for a contract sum of RM1.46 billion.

New players entering Sarawak?

While the names of some companies which propped up during the award announcement have made inroads into Sarawak over the past few years, there were also new players which are venturing into the construction arena of the state this year.

Those construction players are Kimlun, WCT and Gamuda, all hailing from Peninsular Malaysia.

Kimlun and Gamuda are both known for their involvement in the large-scale MRT rail project in the Klang Valley while WCT are renowned for the construction of racing circuits such as Sepang International Circuit, Selangor, Bahrain International Circuit, Bahrain and Yas Marina Curcuit in Abu Dhabi, United Arab Emirates (UAE).

They are established construction players which have strong track records in the construction of numerous roads and highway projects locally and abroad.

Johor-based Kimlun is an engineering and construction services provider specialising in infrastructure and building construction, project management, industrial building systems (IBS) and the manufacturing of pre-cast concrete products.

Kimlun’s executive chairman Pang Tin said, “The winning of the project signifies our geographical diversification to East Malaysia and expansion of our construction services to highway projects.

“The (Pan Borneo Highway Sarawak) project is the single largest contract which we won in our history,” he said.

Moreover, another Johor-based company which could obtain some contract works in Sarawak in the near future is Ajiya Bhd (Ajiya).

The house building components manufacturer told Bursa Malaysia on August 9 that its subsidiary ARI Utara Sdn Bhd (ARIU) has signed a Memorandum of Understanding (MoU) with Kuching-based IMAG Development and Construction Sdn Bhd (IMAG) to supply house building materials for a housing project.

Ajiya added Polybuilding Construction Sdn Bhd (PCSB) in which IMAG is a sub-contractor has received a Letter of Intent from Prima Corporation Malaysia (PRIMA) to construct 746 units of Prima homes comprising of townhouse units with all the necessary amenities, utilities, facilities and infrastructures at Matang, Kuching.

Ajiya noted PCSB was looking into assigning the project to IMAG and IMAG was interested to use Ajiya’s products known as Green Integrated Building Solutions (GIBS) produced by ARIU for the project.

It disclosed that ARIU has agreed to design, supply and deliver the GIBS to IMAG adding that the MoU was only binding in the event of IMAG successfully securing the housing project.

On top of that, Kuala Lumpur-based Iris Corporation Bhd (Iris) had in April 2016 been awarded a contract by the Ministry of Education for the construction and renovation works in seven schools in Sarawak.

The company in a filing to Bursa Malaysia on April 15 said the company has been issued a Letter of Award dated April 14 to undertake the construction and renovation works in seven schools namely SK Kalok Pusa (Betong), SK Kampung Tanam (Mukah), SK Pinang (Kota Samarahan), SK Pulau Seduku (Sri Aman), SMK Sebuyau (Simunjan), SK Niup (Kota Samarahan) and SK Sungai Ladong (Kota Samarahan) for RM28.51 million.

Iris revealed the completion of the project should be on May 25 and revenue from the project is expected to contribute positively to the earnings for Iris Group for the financial quarter on June 30, 2016.

Raising the standards for the sector

Despite registering robust growth over the years, the government realised that productivity of the construction sector is low due to limited modernisation of construction methods and practices, low technology adoption as well as the reliance on low-skilled labour.

Hence, the Ministry of Works has launched the Construction Industry Transformation Programme (CITP) in September 2015 as a move to further develop the construction industry in Malaysia.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in a report dated May 19 said the CITP is a framework for the development of the construction sector that will put Malaysia comparable with the construction industry standards of developed countries such as the United Kingdom (UK).

MIDF Research believed CITP which promotes efficiency in construction methodology and reduction of cost through technology such as IBS and building information modeling (BIM) will help to lift the growth of Malaysia’s construction industry.

The research firm noted the main objectives of CITP are to streamline and modernise Malaysia’s construction industry against the backdrop of Economic Transformation Programme (ETP), Government Transformation Programme (GTP 3.0) as well as the Eleventh Malaysia Plan (11MP).

MIDF Research also noted CITP introduced four strategic thrusts, namely quality, safety and professionalism, environmental sustainability,  productivity and internationalisation to strengthen the development of the construction sector.

The research firm added under one of the strategic thrusts for instance, quality, safety and professionalism, a system that measures the quality of workmanship of a building based on the construction industry standard known as Quality Assessment System in Construction (Qlassic) was formulated.

The stringent requirements of Qlassic scores were not going to be easily achieved by construction players through the conventional method of construction.

Hence, to encourage industry players to achieve high Qlassic scores, the CITP provides incentive to construction players which adopt technology and modern methods of construction such as IBS.

CITP, which encourages the use of technology such as IBS and BIM will enable construction firms to improve their profit before tax (PBT), operating and net profit margin as the cost savings would be reflected in the financial performance.

MIDF Research pointed out that a case in point was Gamuda which employed the Variable Density Tunnel Boring Machine (TBM) for the Klang Valley Mass Rapid Transit (KVMRT) project and other TBMs in SMART Tunnel projects.

The research firm noted the technology applied was unique as the variable density TBM was made by German-Herrenknecht AG to cater for Kuala Lumpur soil profiles of karstic lime and Kenny Hill rock formation.

Having said that, the research firm noted the impact of Gamuda’s technology application was evidential through the company’s 10-year average net and operating profit margin of 17.7 per cent and 33.5 per cent respectively.

Furthermore, MIDF Research observed Gamuda’s KVMRT project package were mostly constructed using IBS system and hence, reducing construction waste and increasing work quality.

Therefore, the research firm believed construction companies such as Gamuda which is led by wide technology content will potentially produce higher (net and operating) profit margins as compared to its peer’s median of seven per cent and 12.2 per cent profit margin respectively.

As a whole, the research firm was positive on the launching of CITP which could help to boost the prospects of the construction sector and enable the sector to achieve nine per cent growth annually.

Enhancing sustainable practices in the construction industry

Recently, the Construction Industry Development Board (CIDB) and the Malaysian Investment Development Authority (MIDA) signed a Memorandum of Understanding (MoU) in Kuala Lumpur as part of an initiative to boost productivity and sustainability practices for investment in the manufacturing, services and construction sectors.

Both agencies noted the areas of partnership under the MoU include enhancing the adoption of IBS, encouraging sustainable practices and promoting compliance to construction material standards amongst construction industry players in Malaysia.

Apart from that, the partnership between MIDA and CIDB was also aimed at encouraging industry players to embrace environmental sustainability.

Both agencies believed that the partneship supports the CITP’s environmental sustainability thrust which has identified industry adoption of sustainable practices as one of the key initiatives to transform Malaysia’s construction sector to be a low carbon, sustainable building and infrastructure hub by 2020.

In that aspect, MIDA and CIDB will be collaborating to promote and facilitate incentives available for industry players which invest in green technology.

On another note, Deputy Minister of Works Datuk Rosnah Abdul Rashid Shirlin encouraged contractors to use raw materials certified by CIDB in order to ensure the construction of buildings are safe and of high quality.

She said good industry practices must be observed in order not to tarnish the industry’s image and professionalism.

“This is to ensure the country’s construction sector is free from the culture of using raw materials that do not meet standards and compromise on safety,” she was reportedly said at a seminar held in Kota Baharu, Kelantan on “Strengthening Quality Management In The Construction Industry – Towards Best Practice” recently.

“The government is committed towards developing quality construction in the country.

“We are optimistic of alleviating the industry’s performance in the country and internationally with these initiatives in place,” she added.

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