Scrapping of KL-S’pore HSR project a bane to construction sector

THE termination of the Kuala Lumpur-Singapore high-speed rail (HSR) project, the single largest infrastructure project thus far with an estimated project sum of RM68 bil is a major disappointment for the construction sector.

Such is the deduction by TA Securities Research especially after the Government had expressed its intention to continue with the HSR project during the recent tabling of Budget 2021.

“However, the decision to terminate the project is not a surprise as the media has recently reported that Malaysia might go alone with the HSR but might end it in Johor Bahru instead of Singapore,” argued analyst Ooi Beng Hooi.

“While it was reported by the media that the Malaysian Government might replace it with a KL-Johor Bahru (JB) HSR – speculated at a lower train speed – there is no certainty at this juncture on the project timeline or whether the project will eventually take off.”

The research house further noted that it is to a certain extent reserved on the feasibility of the rail system.

This is premised on:

  • Financial sustainability:
  1. Heavy investment is not justified by lower passenger volume and business travelling between KL-JB versus KL-Singapore;
  2. Lower catchment population in JB versus that in Singapore;
  3. Difficulty to price the ticket as high as originally intended for the KL-Singapore HSR to cover the investment and operation costs as Singaporeans have significantly higher average earnings per capita; and
  4. Unfavourable costs versus benefits ratio of the project especially given Malaysia’s weakened financial position due to the COVID-19 pandemic.

 

  • Well-served alternative transportation modes:
  1. KL-JB is well-served by the existing North-South Expressway and domestic flights;
  2. Upcoming electrified double track along the West Coast of Peninsular Malaysia (Padang Besar to JB) upon the completion of Gemas-JB double track targeted in October 2022;
  3. Availability of express bus service between KL and JB; and
  4. Greater flexibility and mobility in travelling by passenger cars, especially when Malaysia is among the nations with the highest car ownership per capita.

 

  • Travelling convenience:
  1. A less viable option to travel to Singapore now given the longer commuting hours due to additional transit(s) and assuming at a lower train speed;
  2. Less convenient and involves additional transit(s) to reach Singapore, especially travellers with heavy luggage; and
  3. Lack of integrated public transport system in Johor Bahru to connect commuters to final destination at the moment.

All-in, TA Securities Research maintained its “underweight” stance on the construction sector.

“With the uncertainty over the implementation of the HSR after the termination of KL-Singapore HSR project, and the slower-than-expected rollout of new mega infrastructure projects since the 14th general elections (GE14), we remain cautious on the near-term outlook for the construction sector,” justified the research house.

“(This is) coupled with the Government’s financial constraint, increasing risk from rising COVID-19 new cases, political instability, and the recent jump in steel bar price,which negatively affects construction margin.” – Jan 4, 2021

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