THE revival of MRT Line 3 (MRT; Circle Line) has injected much optimism into Malaysia’s construction sector and could be a prelude to revival of mega projects that were canned after a change of Government in 2018.
One such project, according to MIDF Research, is the Kuala Lumpur-Singapore high speed rail (HSR) where Transport Minister Datuk Seri Dr Wee Ka Siong has initiated discussions with his Singapore counterpart, S. Iswaran.
“The governments of Malaysia and Thailand have also agreed to set up a joint special committee to fine-tune matters for a proposed KL-Bangkok HSR,” observed the research house in its construction sector update.
On Friday (May 30), the Mass Rapid Transit Corp Sdn Bhd (MRT Corp), which is the project developer and asset owner of MRT3, issued three tender notices for the civil main contractor (CMC) packages.
These three packages consist of the main bulk of the construction cost of MRT3 which is RM31 bil in total based on initial estimations by MRT Corp.
Based on the RM31 bil projected construction cost by MRT Corp, MIDF Research estimated that CMC303 is worth RM14.29 bil, which makes it the largest MRT3 contract portion, followed by CMC302 and CMC301 at RM13.94 bil and RM2.79 bil respectively.
Commenting on the tenders, MIDF Research regarded the Government’s commitment in pushing through mega infrastructure projects, starting with MRT3, as a positive development for Malaysia’s subdued construction sector.
The multiplier effect from construction activities is among the largest for any economy and as far as MRT3 is concerned, the expected multiplier effect is 3.5, according to the research house.
“We noticed that MRT Corp has kept to its projected timeline of events since the Government’s approval of MRT3 in March and we are confident that the tenders would be awarded in 4Q CY2022 as expected and for construction activities to kick off in 1Q CY2023,” projected the research house.
“This will keep the construction players busy until 2030 with strong order book replenishments and the much-needed earnings visibility.”
On the beneficiaries, MIDF Research reiterated its view that Gamuda Bhd (“trading buy”; target price: RM3.89) will seize the lion’s share of MRT3 which is the CMC303.
“It is as good as shovel ready for the project, premised on its joint venture (JV) outfit MMC-Gamuda with vast experiences in MRT1 and MRT2,” opined the research house.
“Earlier this year, Gamuda was awarded a RM6.5 bil tunnelling project in Sydney and a RM1.45 bil contract to build a station and two tunnels in Singapore together with its Singapore JV partner which are testaments to its tunnelling expertise.”
Recall that on April 4, Gamuda received a conditional offer from Amanat Lebuhraya Rakyat to take over its four highway toll concessions for RM5.48 bil.
The group will receive cash proceeds of RM2.3 bil which will allow it to strengthen its balance sheet to a net cash position of RM584 mil, hence placing it in a favourable position for the upfront financing requirement for the MRT3 job.
Other potential front runners are construction giants IJM Corp Bhd (“buy”; TP: RM2.18) and Sunway Construction Group Bhd (“buy”; TP: RM1.87), both of whom have vast experience in rail projects such as the light rail transit (LRT) and MRT.
Other potential beneficiaries include WCT Holdings Bhd (“buy”; TP: 86 sen), Gabungan AQRS Bhd (“buy”; TP: 56 sen), Malaysian Resources Corp Bhd (“neutral”; TP: 36 sen) and Malayan Cement Bhd (“buy”; TP: RM3.00) as the building materials beneficiary. – May 30, 2022
