CIMB Research: Fewer mega rail jobs in 2019
PETALING JAYA: The cancellation of the East Coast Rail Link (ECRL) may lead to fewer mega rail contracts next year, according to CIMB Research.
The research house pointed out that while no local contractors had won ECRL packages, the cancellation was lost opportunity for the deemed beneficiaries such as IJM Corp Bhd, Gabungan AQRS Bhd and Econpile Holdings Bhd.
“The ECRL’s cancellation is a negative surprise considering the recent newsflow that hinted at a likely scaled-down version in order to avoid penalties.
“Cancelling the ECRL, in our view, underscores mega rail contracts’ downturn in 2019,” it said in a report yesterday.
At yesterday’s close, shares in Gabungan AQRS, IJM Corp and Econpile fell 2.44%, 1.06% and 1.14% to RM1.20, RM1.86 and 87 sen, respectively.
CIMB said that IJM was deemed to have a strong chance of securing the spur line into Kuantan Port.
It said Gabungan AQRS was likely to grab a sizeable above ground scope leading to the KotaSAS station in Pahang, and Econpile was a favourite to secure piling jobs.
Meanwhile, HSS Engineers Bhd and Lafarge Malaysia Bhd, which had received jobs for the ECRL project, saw their share prices go up by 3.2% and 2.3% to 97 sen and RM3.10, respectively.
HSS was awarded with the feasibility, design, and construction supervision package of the ECRL with an outstanding value of RM133mil, and Lafarge had secured a twoplus-two-year contract to supply cement valued at RM270mil.
CIMB said the ECRL’s job made up about 30% of HSS’s non-water order book of RM411mil.
“We estimate that at the minimum, it will have to cancel out RM80mil revenue of the outstanding contract value, for the construction supervision works,” it said.
On Tuesday, Prime Minister Tun Dr Mahathir Mohamad, who was on a five-day visit to China, announced that the ECRL project had been cancelled due to Malaysia’s financial woes.
Nonetheless, CIMB said that the upside risk is a revival of rail jobs such as the RM45bil third Klang Valley Mass Rapid Transit or MRT 3.
“In the second half of the year, key events to look out for are the 11th Malaysia Plan midterm review on Oct 18 and the Budget 2019 on Nov 2,” it said.
Notably, the ECRL project, which spans from Port Klang to Gombak and onwards to Kuantan and Pengkalan Kubor, has been suspended due to its escalating price tag.
The project started off with an initial estimate of less than RM30bil in 2007. When the previous government signed the agreement with the main contractor China Communications Construction Co Ltd (CCCC) in 2016, it was for phase one – from Gombak to Wakaf Baru in Kelantan – tagged at RM46bil.
The cost of phase two, from Gombak to Port Klang, was RM9bil.
On May 13, 2017, the previous government signed an additional agreement with CCCC to carry out phase two of the project.
According to the figures, the basic cost of the project amounts to about RM66.78bil not inclusive of land acquisition cost, interest, fees and operating costs – bringing the final amount of the ECRL to a RM81bil.