MRT2 likely to be next project subjected to cost reduction

KUALA LUMPUR: The Mass Rapid Transit Line 2 (MRT2) is expected by analysts to be the next project to be subjected to cost reduction, while chances for the revival of High Speed Rail (HSR) and MRT3 are believed to be slim in the near term.

The research arm of Hong Leong Investment Bank Bhd (HLIB Research) had opined in its latest construction sector outlook that the “next mega project that is likely to undertake cost-cutting measures is MRT2 (RM32 billion).”

HLIB Research observed that listed companies that are expecting to be negatively affected are Gamuda Bhd (Gamuda) and MMC Corporation Bhd (project delivery partner role and underground package of RM15.5 billion), Ahmad Zaki Resources Bhd (two work packages amounting to RM1.7 billion), IJM Corporation Bhd (RM1.5 billion viaduct package), Sunway Construction Group Bhd (three work packages amounting to RM1.5 billion), George Kent (Malaysia) Bhd (RM1 billion track works), WCT Holdings Bhd (two work packages amounting to RM1.1 billion) and Gadang Holdings Bhd (RM952 million viaduct package).

As for HSR (RM60 to RM70 billion) and MRT3 (RM40 billion) which has been shelved the new Pakatan Harapan (PH) government, the research arm believed that chances of revival for these projects were low.

“Although there were reports regarding revival of these projects, we reckon that chances are slim in the near term,” it said.

According to HLIB Research, the first half of 2018 (1H18) saw domestic contract awards to listed contractors totalling RM8.7 billion, down 18 per cent year on year (y-o-y).

The research arm expected a slowing in job flows in 2H following downsizing of mega projects, with 2018 contract awards to end at RM15 billion, a steep decline from 2017 (RM29 billion) and 2016 (RM56 billion).

On PH promising to review all highway concession agreements in its election manifesto, HLIB Research opined that a full toll abolishment without fair compensation scenario is unlikely as this will spook investor confidence which may affect funding for future infrastructure development plan.

As for the Syarikat Pengeluar Air Sungai Selangor (SPLASH) deal, the research arm is optimistic towards the near term settlement due to greater cooperation between federal and state governments.

“Major beneficiaries from settlement of the deal are Gamuda and Kumpulan Perangsang Selangor Bhd (KPS) via 40 per cent and 30 per cent stake in SPLASH respectively and Taliworks Corporation Bhd via the recovery of RM638 million receivables (as at March 31, 2018) owed by SPLASH.

“Besides, pipe manufacturers such as Engtex Group Bhd, Hiap Teck Venture Bhd, Choo Bee Metal Industries Bhd and YLI Holdings Bhd may benefit from rollout of pipe-replacement projects in order to curb NonRevenue Water (NRW) problem post SPLASH deal.”

Overall, HLIB Research maintained ‘neutral’ on the construction sector post changes in federal government and scrapping of mega projects.

“The domestic construction industry landscape is expected to remain challenging and we do not expect a significant improvement in near term.