‘Guessing game to identify beneficiaries of major infra projects’

KUCHING: Given the typical time lag before the actual construction packages of major infrastructure projects are awarded on an open tender basis, analysts say it will be a guessing game initially to identify the potential beneficiaries

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), a closer look at the list of potential major infrastructure projects reveals that the timing of commencement for most of them will likely lean towards the second half of 2020 (2H20).

“This includes the possible revival of the Kuala LumpurSingapore High Speed Rail ( HSR) project, with a decision due to be made by May 2020 and Mass Rapid Transit 3 ( MRT3), possibly towards year- end as the government may want to space out the infrastructure spending spree due to its tight fiscal constraints,” Kenanga Research said in its construction sector update.

“Whilst there may be initial knee-jerk share price movements in response to any news flows on the re-launching of these mega projects, given the typical time lag before the actual construction packages are awarded on an open tender basis, it will be a guessing game initially to identify the potential beneficiaries with any meaningful earnings impact expected to be felt starting from two to three years thereafter.”

Kenanga Research has however highlighted that on the list, one major project that is slated to kick off as early as January this year is the Penang

Transport Master Plan (PTMP).

It further highlighted that the signing of the agreement between the Penang state government and the SRS Consortium is scheduled to take place soon under a Project Delivery Partner ( PDP) structure.

“The PTMP master plan consists of three key components, namely the RM8.4 billion Light Rail Transit ( LRT) project, the RM7.5 billion Pan Island Link ( PIL) highway and the RM16 billion reclamation of three south islands, with physical works likely to start in 2H20.

“This is expected to benefit Gamuda, which has a 60 per cent interest in SRS Consortium.”

Meanwhile, Kenanga Research noted that the open tender model and stiff competition for construction jobs will also put pressures on construction margins.

The research arm noted that Coupled with the slow pace of construction progress so far for key projects such as LRT3 and East Coast Rail Link ( ECRL) that have already been revived previously, this has taken a toll on the performance of construction companies.

“Whilst it may take time for contractors along the value chain to replenish their orderbooks, they will be relying on existing order-books to sustain their earnings in the near term.

“On the back of expectations for the government to implement more infrastructure projects to create the multiplier effects in the economy, there will be sustained investor interest to support share prices of construction companies.”