This article first appeared in The Edge Financial Daily on October 5, 2017

Construction sector
Maintain overweight: We hosted a two-day meeting-cum-site visits to Sabah for 10 buy-side analysts and fund managers. This was our first trip to Sabah, with the sole purpose of getting a better understanding of: i) major sector drivers under the Sabah Development Corridor (SDC) master plan; ii) Sabah’s tourism potential that is driving the commercial developments at One Jesselton Waterfront; iii) spillover effect of the construction of the Pan Borneo Highway; and iv) the port capacity expansion plans by Suria Capital Holdings Bhd.

We met with the Sabah Economic Development and Investment Authority (Sedia), the government agency tasked to drive the SDC; Suria Capital, the exclusive concessionaire of Sabah’s ports and landowner of One Jesselton Waterfront City; Gabungan AQRS Bhd, a contractor and property developer co-developing One Jesselton Waterfront and Ferry Terminal; and Sedco Precast Sdn Bhd, a precast building materials fabricator that is 49% owned by Gabungan AQRS.

The meeting with Sedia highlighted two key economic drivers under the Greater Kota Kinabalu Initiative and the SDC: the One Jesselton Waterfront City and the state’s port expansion programme.

The SDC’s total cumulative investments amount to RM158 billion (as at Sept 16) which covers the five strategic development areas of the SDC. By 2025, the SDC initiative aims to triple Sabah’s gross domestic product (GDP) per capita and quadruple GDP.

In our view, Suria Capital and Gabungan AQRS could emerge as the potential beneficiaries of the RM12 billion Pan Borneo Highway (Sabah), as the companies will jointly bid for the project.

Another positive for Gabungan AQRS is its 49%-owned Sedco Precast’s leading position in the Sabah precast concrete market, which, in turn, may enable it to secure a lion’s share of the estimated RM2 billion precast orders from the highway project.

We came away from the visit with a better sense of Sabah’s infra outlook and its immediate beneficiaries over the medium- to longer-term. The rollout of new transport and road projects should not be overlooked, given the success and progress of the other four regional growth corridors.

The SDC’s outlook could play catch-up over the remaining period of the Eleventh Malaysia Plan (2016-2020). Maintain “overweight”, with Gamuda Bhd as our top big-cap pick for the rail theme. Downside risks are job delays and funding risks. — CIMB Research, October 4