ALL the excitement and upbeat expectations for the construction sector in 2021 has apparently died down following the termination of the Kuala Lumpur-Singapore High Speed Rail (KL-SG HSR) project coupled with the re-imposition of movement control order (MCO 2.0) and declaration of a state of Emergency.
At this juncture, CGS-CIMB Research expects the pace of the construction sector’s recovery to remain muted but still backed by Budget 2021’s RM37 bil direct infrastructure allocation.
“What is new of late is that our channel checks post termination of KL-SG HSR suggest the likelihood that a revised version of the MRT 3 (Mass Rapid Transit Line 3) project could be given the green light ahead of the ongoing feasibility studies on the alternative KL-JB HSR line,” suggested analyst Sharizan Rosely in a construction sector update.
Funding and viability aspects aside, the Government’s new plan to roll out an alternative (shorter) HSR project that is 30% cheaper than the original RM60 bil cost (excluding rolling stock and systems) and which will start two years earlier (likely in 2022) remains unchanged, according to the research house.
“We also recently gathered that the new MRT 3 proposal may see up to a 40% cut in total original cost of RM45 bil on the removal of certain underground scopes,” revealed Sharizan.
“Our estimated RM63 bil – RM74 bil in combined potential civil works (vs original estimate of RM105 bil) is a huge catalyst for the job outlook but our reservations about the MRT 3 and new HSR projects lie in the timing risks/uncertainties brought about by the political landscape which could remain in a state of flux till 2H 2021F.”
Due to the heightened political uncertainties and the potential negative impact of the record high COVID-19 cases on earnings and risks from a prolonged MCO 2.0, CGC-CIMB Research retained its “neutral” outlook on the construction sector.
“The potential silver linings in 1H 2021F include (i) announcement of the 12th Malaysia Plan (12MP); (ii) new tenders for water contracts in Selangor; (iii) approval of a revised MRT 3 project; (iv) new details for the KL-JB HSR project, and (v) new private sector/public-private partnership (PPP) contracts,” noted the research house.
“The key sector downside risks include (i) funding limitations for mega jobs; (ii) politics, and (iii) delays in Budget 2021 projects due to the MCO 2.0” – Jan 18, 2021
