CONSTRUCTION SECTOR

A StarBiz report stating that the Light Rail Transit Bandar Utama-Klang Line (LRT 3) may be scaled down or shelved is a negative surprise for the sector, according to CIMB Research.

The research house said the downsizing the LRT 3 project would impact existing order books and margins of construction players.

The report stated that Prasarana Malaysia Bhd, the project owner of LRT 3, might be taking over the rail system’s construction works from the project delivery partner (PDP). Currently the PDP is a 50:50 joint venture between Malaysian Resources Corp Bhd and George Kent (M) Bhd.

Other contractors under the coverage of CIMB Research which have exposure to LRT 3 are Sunway Bhd via Sunway Construction Group Bhd (SunCon), WCT Holdings Bhd, IJM Corp Bhd, Muhibbah Engineering (M) Bhd and Eita Resources Bhd.

The research house maintained its “underweight” call on the sector, noting that the key upside risk would be a revival of scaled-down rail projects.

The report had quoted sources as saying that the cost of completing the LRT3 project could be brought down by nearly RM6bil if it goes back to the original design. It said additional variation orders by Prasarana due to changes in the original design of the 37km track had caused the cost of the LRT3 project to balloon to RM15bil.

It added that Prasarana planned to take over the construction of LRT 3 after costs rose from the reported RM9bil to over RM15bil.

It said one way to slash the construction cost was by reducing the size of the project while other options being considered included reverting to the turnkey model. In a worst case scenario, the project could be shelved “given the current financial constraints”.

The overall cost of LRT3 had been estimated to be RM10bil when it was launched in September 2015.