Selangor will require a lot of water infrastructure-related works in the near future to meet rising demand, and investors would do well to look at the prospective beneficiaries of upcoming projects, Maybank Research said.
Two areas hold opportunities for investors: 1) the construction of the Langat 2 water treatment plant, and 2) the state’s pipe replacement project.
Between the two, the latter would make a better bet because the margins for Langat 2 were “unlikely to excite”. Moreover, according to Maybank Research, about 6,000km of pipes in Selangor need to be replaced to stem losses from non-revenue water or leakages.
According to its calculation, the potential value from this programme, on hold since 2008, is more than RM1.2bil.
“The state’s major pipeline replacement programme, when it resumes, and the Langat 2 project’s distribution pipeline should benefit the domestic pipe producers,” it argued, adding that local pipe makers are generally protected by local content clauses with approval from the authorities required for the import of certain types of pipes.
Among the domestic pipe producers could benefit are JAKS Resources, YLI and particularly Engtex.
According to the research house, Engtex and YLI are the only two domestic producers of ductile iron pipes, which make for an attractive proposition because they are more durable and easier to install than mild steel pipes. And as Engtex also produces small-to-mid size mild steel pipes, its product range is one of the most diverse.
On the construction side, Phase 1 of the Langat 2 treatment plant project is very much on the radar right now.
The tender for the proposed treatment plant, which will connect with the Pahang-Selangor raw water transfer project (due for completion in May 2014), closed at the end of last year. Thirteen companies made their bid for the contract estimated at between RM1.2bil and RM1.3bil, including Gamuda, IJM, WCT, MMC, Salcon, Loh & Loh and Ahmad Zaki Resources.
The result was supposed to have been announced in April but was delayed because of the 13th General Election. Maybank Research said construction must start by the end of the year if the plant is to come online in early 2016.
That’s supposed to be the crunch year when current capacity would be tapped out, according to SPAN, the authority overseeing water supply and production. However, the project will still need the say-so of the Selangor government before it can go ahead after the contract is awarded.
That’s still pending at the moment.
