CONSTRUCTION
By CIMB Research Overweight (No change)
MAJOR sector drivers are more in focused in Budget 2018, with rail, affordable housing, roads/ highways and water infrastructure to benefit from the Government’s high impact project initiatives and spending next year.
The RM210bil compiled value of projects under Budget 2018 comprises rail and public transport (73%), rural infrastructure, private-finance initiative (PFI) and schools (19%), while the rest are roads, public housing and water infrastructure.
Notably, major contracts that will be implemented in five to eight years from 2018 are public transport/rail, including the RM55bil East Coat Rail Link (ECRL), the RM50bil to RM60bil KL-Singapore High Speed Rail (HSR), the RM40bil MRT 3 (Circle Line) and the RM9bil Gemas-JB electrified rail double tracking (though not highlighted in the budget).
The RM32bil MRT 2 (SSP Line) and RM9bil LRT 3 (Bandar Utama-Klang), which have largely been awarded, will ramp up construction works next year.
“The good news is that the MRT 3 (Circle Line) project is targeted to be completed in 2025, two years earlier than the original target of 2027.
“Our cost estimate based on an assumed 40km alignment and MRT 2-benchmarked RM1bil cost per km puts an RM40bil estimated price tag for the project, which could be up for Cabinet approval by mid-2018, going by our previous industry checks.
“Funding mechanism for the MRT 3, which will be the final high capacity rail network in Kuala Lumpur, was not detailed,” said CIMB Research. In addition, the launch of the feasibility study for the Labuan-Sabah bridge was not entirely a surprise as the project was first mentioned in the press in 2009, with a total length of 17km and an estimated cost of at least RM1bil. A positive surprise was the total RM3.1bil allocation water infrastructure, comprising non-revenue water (NRW, RM1.3bil) related contracts, off-river storage (water source, RM1.3bil) and RM420mil rural water supply for Sabah and Sarawak.
Compared to CIMB Research’s compilation for the Budget 2017, the combined allocation for public housing projects surged more than eightfold to RM3.5bil under Budget 2018 while the budget for water/electricity infrastructure surged 60% to RM3.1bil.
Allocation for the construction of non-tolled roads (excluding road maintenance and Pan Borneo Highway) surged 81% to RM2.4bil. Separately, the RM2bil allocation for Pan Borneo Highway is likely to focus on the 11 awarded packages in Sarawak and the five awarded in Sabah.
“Overall, the Budget 2018 puts a priority on outstanding major rail contracts, mainly the RM55bil ECRL. The progress of other major rail jobs should catalyse sector news flow ahead of the 14th General Elections,” said CIMB Research.