Abstract
Despite Malaysia faring particularly badly during the current global economic
downturn, the recession
has done little to dent the bottom lines of the
country’s key infrastructure companies, if results from the
first
quarter of the year are anything to go by. Indeed, Gamuda registered a profit
of US$13mn in the
three months to the end of April 2009, WCT Engineering
posted a profit of US$19.5mn in the three
months to the end of March 2009,
and IJM Corp posted a profit of US$113.2mn in the 12 months to the
end of
March 2009. Geographic and sector diversification have helped to underpin
these companies’
performances. Going forward, the bounce in oil
prices in the first half of 2009 should underpin workflow
from the Middle
East, a key arena of operations.
Much has been made by the local press
– and financial markets, with construction firms surging in value
in
the first half of 2009 – of Malaysia’s fiscal stimulus plans.
However, we remain dubious about the
impact of these spending plans,
particularly for the current calendar year. Prime Minister Najib Razak
announced on June 16 that in the six and a half months since the first fiscal
stimulus package was first
announced in November 2008, only MYR4.0bn
(US$1.1bn) of the planned MYR7.0bn in additional
spending has been offered
to successful contractors, and as of June 5, only MYR1.4bn has actually
been
spent. Moreover, although the government announced a second fiscal
stimulus package to the tune of
MYR60bn – equivalent to
approximately 9% of GDP – as of March, only MYR10bn of this is slated to
be
spent this year. While MYR4.2bn of this has already been allocated,
only MYR1.2bn has been spent. The
fiscal stimulus measures should have a
more pronounced impact on the economy, particularly the
construction
sector, in 2010, but even then, fiscal constraints generate concern about the
government’s
ability to carry forward its spending plans fully.
Meanwhile, the economy remains mired in recession, with GDP growth in the
first quarter of 2009
registering a contraction of 6.2% y-o-y in real
terms. For the full calendar year, we anticipate that the
economy will
contract by 3.4% in real terms. With all this in mind, we now predict that
Malaysia’s
construction sector will contract by 4.29% in real terms
in 2009, and 1.21% in 2010. Furthermore, 2011 is
likely to witness near
zero real growth in sector output. These forecasts represent a significant
negative
revision from the first quarter of the year, when we had been
predicting that the construction sector would
contract by a relatively
modest 1.4% in 2009 before returning to real growth of 2.1% in 2010.
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