Govt change could leave Penang infra in the dust

O Ability of Penang Transport Master Plan lead contractor to raise working capital in doubt with a new administration in at federal level, says CGS-CIMB

PETALING JAYA: The recent change of administration has raised concerns over the implementation of new infrastructure projects that have been planned by the previous federal government under Tun Dr Mahathir Mohamad.

In a note, CGS CIMB said that over the medium term, it believes that the Penang Transport Master Plan (PTMP) could be downplayed, in view of the uncertainties as to whether the Penang state government would be able to raise RM10 billion in bonds, backed by the then-planned federal government guarantee, given the change in cabinet ministers, including the finance minister.

“Also, the ability of the lead contractor of the PTMP project delivery partner to raise its upfront working capital needs, via proceeds from the RM6.2 billion acquisition of highways by the Finance Ministry, remains to be seen, in view of the risks of further delays for the deal closure,” it said.

As for the overall construction sector, the research house pointed out that its channel checks revealed a heightened level of uncertainty over the status of several projects, including the Q2 targeted rollout of the RM3-4 billion in new tenders for the East Coast Rail Line and the KL–Singapore high speed rail (HSR), upon the expiry of its review period in May 20.

It also pointed out that there has been a slower-than-expected disbursement of government funds to kick off selected contracts under Budget 2020.

“As a political change-of-guard would typically impact project approvals, contract tenders and award timelines, we believe 1H20 would turn out to be a subdued period for contractors, casting a prolonged overhang on share prices of contractors that were previously perceived to benefit from the new implementation cycle for large-scale contracts,” it said.

CGS CIMB noted that it continues to expect the sector’s contract award momentum in FY20 to come off a low base, from the estimated RM80 billion total jobs awarded in 2019, compared with FY18’s RM134 billion.

CGS CIMB is maintaining its neutral call on the sector, and expects share prices to remain weak.

It believes Sunway Bhd, via Sunway Construction, could emerge as one of the key bidders for the RM2 billion Iskandar Bus Rapid Transit and RM3.2 billion Rapid Transit System, while YTL Corp Bhd could be seen as reviving its potential exposure to the KL– Singapore HSR project.