CONSTRUCTION : OVERWEIGHT

- Details of Ampang line extension out tomorrow

* Syarikat Prasarana Negara Bhd (SPNB) will release details of the Ampang Line Light Rail Transit (LRT) extension works from tomorrow, said Bloomberg. Details of the project will be open for public viewing from 15 Sept until 14 Dec.

* Scope of works entails construction of tracks and stations, a depot, carparks, procurement of new train sets, signalling, communications, power supply and automatic fare collection systems.

* Project forms part of the larger Klang Valley LRT extension program. This mainly consists of extension works linking the existing Ampang as well as Kelana Jaya lines with Putra Heights (USJ) at the southern tip of Klang Valley.

* The entire project - estimated to cost an initial RM7bil - will likely be funded by Federal-backed SPNB. Just last week, SPNB's RM2bil Islamic bonds were oversubscribed more than three-times.

* Bonds will be issued in two tranches - a 15-year RM500mil issue and 20-year RM1.5bil issue - with semi-annual profit rates of 4.85% and 5.07% respectively. We gather that SPNB plans to issue another RM2bil worth of Islamic bonds next year to kick-start the project.

* This validates our earlier conviction that contract newsflow on the Klang Valley LRT extension works is gaining traction. Prior to this, SPNB had already issued tenders for advance works (June 22) and clearing of tele-communication cables (Sept 8) for both rail lines.

* More importantly, SPNB managing director Datuk Idrose Mohamed was quoted in the Bloomberg report as saying that pre-qualification tenders for other main components of the extension works could be dished out next month.

* Based operating track record, we believe both IJM Corp Bhd (IJM) and Gamuda Bhd (Gamuda) are frontrunners for the LRT jobs. IJM - via Road Builder/Pati JV - was main civil sub-contractor for the existing Ampang/Kelana Jaya as well as KL Monorail lines.

* Gamuda's status as a tunnelling export and its successful deliverance of the high-profile Kaoshiung MRT project in Taiwan gives the group an added edge over its peers. We however, do not preclude possibility of a consortium being formed to facilitate entry of other local players at sub-contractor level, which may include WCT Bhd and Loh & Loh Bhd.

* Latest development validates our earlier stance that domestic contract flows are gaining momentum and reaffirms our OVERWEIGHT stance on the construction sector. Apart from LRT projects, tenders for the Bakun transmission cable project - estimated to cost RM10bil - could be out by 1Q10.

* We expect up to RM62bil worth of select cornerstone projects to be rolled-out over the next six to 12 months. In addition, there is now greater margin certainty due to a more stable environment in prices of building material as opposed to volatile prices during its peak in 1H 2008.