Bandar Mala��sia could provide pipeline of works for local contractors
KUALA LUMPUR: Bandar Malaysia could provide a pipeline of works for local contractors over the long term, analysts opine, but also notes that this is dependent on whether the IWH-CREC (60:40) joint venture (JV) will be able to complete its acquisition of the 60 per cent stake in Bandar Malaysia this year.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined that if IWH-CREC is successful in acquiring the 60 per cent-stake in Bandar Malaysia, the JV could take on the development on its own or subdivide Bandar Malaysia into multiple parcels and dispose to interested developers.
“We opine that it is essential for IWH-CREC to do outright sale of subdivided Bandar Malaysia lands to interested developers, as it is essential to fund the entire infrastructure of Bandar Malaysia without any funding from the Ministry of Finance (MOF),” Kenanga Research said.
It noted that IWH’s sister company Ekovest Bhd could potentially be Bandar Malaysia’s key contractor.
“We are unexcited for the time being as we expect construction contracts to be awarded earliest by end-2020 if not 2021, should IWH-CREC is able to complete their acquisition of the 60 per cent stake in Bandar Malaysia this year.”
According to Kenanga Research, typically, gross development cost (GDC) makes up circa 50 per cent of total gross development value (GDV) of a project, indicating that the total GDC for Bandar Malaysia could hover at circa RM70 billion, based on the estimated GDV of RM140 billion announced by the Prime Minister’s Office (PMO).
“Assuming infrastructure makes up 10 to 15 per cent of the total GDC, IWH-CREC might need to fork out another RM7 billion to RM10.5 billion for Bandar Malaysia’s infrastructure works.
“Should we assume 40 per cent local participation, we believe that local contractors can be eyeing RM2.8 billion to RM4.2 billion amount of infrastructure works from Bandar Malaysia earliest by end 2020.
“Subsequently, they can bid from individual developers participating in Bandar Malaysia just like IJM Corporation Bhd which tendered for HSBC tower works in TRX.”
Hence, Kenanga Research believed that the construction works for the development in Bandar Malaysia could commence earliest by 2023 to 2024.
“Nonetheless, our concern lies with the funding for the infrastructure works as IWHCREC might need to do another round of fund raising, unless they are able to sell the land before commencing on any infrastructure works.”
“There has been some euphoria in the market with the KLCON index sharply rebounding by 47.7 per cent over four months since its low in December.
“We believe it would be shortlived given the uncertain timeline of the development of Bandar Malaysia.