AmBank Research - Construction (Sarawak) : Pan Borneo Highway: 8 packages out by mid-July OVERWEIGHT, 15 Jun 2016

SECTOR FOCUS OF THE DAY

Construction (Sarawak)  : Pan Borneo Highway: 8 packages out by mid-July          OVERWEIGHT

The decision on the successful tenders for the remaining eight main packages of the Pan Borneo Highway (Sarawak portion) is expected to be made by mid-July, according to the project delivery partner (PDP) Lebuhraya Borneo Utara Sdn Bhd (LBU). According to LBU on its website, the tender bids for the eight works packages will be evaluated on technical and commercial criteria. We understand the announcement on the winners could stretch till end-July.The works packages, averaging 60km-90km each, are under Phase 1 of development works covering a distance of 746km. A total of 13 prequalified companies/consortia are in the running for the remaining eight main packages under Phase 1. The federal government has yet to decide on the delivery of Phase 2 (connecting northwards from Limbang to the Sabah border of ~100km). The 1,089km Sarawak portion of the Pan Borneo Highway reportedly costs RM16.4bil. Four packages have been awarded. Works Minister Datuk Seri Fadillah Yusof said last week that work on the packages that had been rolled out earlier was on schedule and had reached the 5% mark.

For the main works packages, we continue to like the chances for KKB Engineering (FV: RM2.00/share, BUY), Cahya Maya Sarawak (Non-Rated) and Naim Holdings Bhd (Non-Rated). KKB has teamed up with WCT Engineering; CMS with Bina Puri and Naim with Gamuda. The local parties will each have a 70% stake in their respective JVs. Other Peninsula-based construction companies that are in the running for the main packages include Sunway Construction Group, IJM Corp, and MRCB. Meantime, it is unclear when the separate packages for the relocation and replacement of water steel pipes, electricity poles and lamp posts will be awarded. LBU has said for better economies and coordination, a single contractor would be appointed for these. The utilities packages are likely to be sub-contracted to local companies. We expect KKB and Sarawak Cable (FV: RM2.00/share, BUY) to be primary beneficiaries for the utilities packages, in addition to the supply of guardrails for the highway proper. We believe they have separately registered their interest to LBU to be suppliers of those ancillary elements of the highway.

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