LRT3 greenlight positive for MRCB-GK JV’s prospects

KUALA LUMPUR: The greenlight for the Light Railway Transit Phase 3 (LRT3) project is a positive development for the MRCB and George Kent Joint Venture (MRCB-GK JV).

In an announcement on Bursa Malaysia, MRCB Resources Corporation Bhd (MRCB) said its JV WITH George Kent (Malaysia) Bhd has been granted an official approval by the government to continue on with the LRT3 project.

The project was in danger of being scrapped earlier this year but was ultimately given the greenlight after the JV and federal government was able to come to agreement to reduce the cost and scope of the massive RM31.45 billion project to a total cost of RM16.6 billion.

In an update report, analyst MIDF Research Investment Bank Bhd (MIDF Research) said the new cost coverage is expected to include all project costs, including but not limited to work package contracts, land acquisition, project management, consultancy fees, operational and overhead costs as well as interests during construction.

To achieve the drastically cheaper price, the cost rationalise exercise included reduction in the project scope.

For one, the original 42 sets of six-car trains have been reduced to 22 sets of three-car trains, this reduction allowed for a smaller LRT train depot and a streamlining of the size and design of the LRT stations based on LRT line standards.

Additionally, the cost of construction was further decreased with the extension of the timeline to complete the project from 2020 to 2024.

“While the project’s costs have been significantly reduced, we are comforted that the cost-savings approach prioritized by the new government did not result to the oss of earnings opportunity for the JV Co.

“However, the cost structure has been materially altered. Taking this into consideration along with the new fixed price model, we estimate that net profit margin to be adjusted lower,” said the research arm.

With that said, MIDF Research detailed that they are now adjusting theirt forecasts for MRCB lower by 11 and eight per cent for FY18 and 19 respectively.

“According, we arrived at a target price of RM1.07 per share driven by our sum-of-parts valuation,” said the research arm.