Construction sector feeling more than a pinch

KUALA LUMPUR: The government’s decision to liberalise the building materials industry amid soaring raw material costs came under scrutiny by local construction players in the first Malaysian Construction Summit organised by Master Builders’ Association of Malaysia (MBAM) and Asian Strategic and Leadership Institute (ASLI) here yesterday.

“All our steel bars for local consumption are produced locally, using heavily subsidised energy cost but we are paying the second highest price for steel bars in the region. Many of our members are facing difficulties with the rising costs,” MBAM president Patrick Wong said in his speech.

He told The Edge Financial Daily that the construction sector was facing cost pressure, more so with the recent move to liberalise the building material sectors, namely steel and cement, key components for the industry.

“We cannot lock in the prices of our raw materials when we are bidding for projects as there are insufficient supplies of raw materials for us to do so. The only way is for us to reduce the number of bidding for projects so as not to be caught by the spiralling prices,” he added.

IJM Corporation Bhd managing director and chief executive officer Datuk Krishnan Tan said in his speech that the industry was facing a tough time, with the shortage of skilled manpower due to a construction boom in the region stunting the growth of the local industry.

Some major players still managed to rake in higher profits despite the difficult situation, based on the quarterly financial results announced recently.

Malaysian Resources Corporation Bhd, for example, posted a net profit of RM14.7 million in the first quarter ended March 31, 2008 (1QFY08), versus RM12.8 million a year earlier, though revenue dropped to RM177.1 million from RM276.8 million.

UEM Builders Bhd’s net profit was up at RM29.2 million versus RM17.1 million, although revenue fell from RM714 million to RM596 million.

Putrajaya Perdana Bhd, which secured a RM180.5 million construction and maintenance contract for wharf structures in Port of Tanjung Pelepas (PTP) recently, posted a net profit of RM5.28 million on revenue of RM150.6 million in the first quarter.

Some recent major infrastructure projects announced by the government could help to revive some of the companies in the sector, according to ECM Libra Investment Research.

Loh & Loh Corp Bhd and IJM Corp are expected to benefit from the RM3.4 billion Seremban-Gemas railway double-tracking project with subcontracts worth RM490.1 million and RM273 million, respectively.

Loh & Loh closed unchanged yesterday at RM4.58, IJM was down 25 sen at RM5.40 while MRCB fell two sen to RM1.30. UEM Builder was down one sen to RM1.29.

By The EDGE Malaysia - The Edge Financial Daily - (by Tony C.H.Goh)