MRCB, George Kent up on nod to proceed with LRT3

Implementation concept will be remodelled to fixed-price contract

PETALING JAYA: Shares of Malaysian Resources Corp Bhd (MRCB) and George Kent (M) Bhd closed higher on news that the government will continue with the light rail transit 3 (LRT3) project.

In a filing with Bursa Malaysia yesterday, both companies said they had received a letter from Prasarana Malaysia Bhd, informing them that the government has agreed to continue with the LRT3 project at a total cost of RM16.6bil, including land acquisition costs, interest during construction and other costs.

“The implementation concept of the project will be remodelled from a project delivery partner (PDP) regime to a fixed-price contract regime.”

At 5pm yesterday, MRCB’s shares rose more than 10% to close at 79.5 sen, while George Kent closed 13 sen up to RM1.14.

There had been uncertainties surrounding the LRT3 project due to concerns over escalating cost issues. The LRT3 project involves a 37-km line from Johan Setia in Klang to Bandar Utama, Petaling Jaya. It started off more than two years ago at a budget of RM10bil.

However, in July this year, Finance Minister Lim Guan Eng disclosed that the cost was some RM31.6bil. MRCB together with George Kent is the joint PDP for the project, while Prasarana is the owner.

The Finance Ministry said the project had to be done at RM16.6bil, which forced all parties to go back to the drawing board. Work on the LRT3 project has slowed down for several months.

Kenanga Research in a recent report has maintained its “neutral” call on the construction sector due to the persisting uncertainties; especially on the cost review of the MRT2 and LRT3 projects as contractors are unable to continue to work on the projects in full swing.

“Any further delay in concluding the cost will result in a higher operating cost for contractors arising from idling cost, coupled with the lack of direction in policy,” it said.

However, the research house added that it would be a great opportunity for investors to bottom-fish, as most of the contractors have seen minimal recovery from the selldown post-14th general election, which placed valuations at attractive levels.

Meanwhile, UOB Kay Hian pointed out that MRCB’s strong order book backlog of RM6.2bil could provide earnings visibility for its construction arm for the next three to four years, coupled with its modest reliance on the federal government-related projects.

“Also, Putrajaya’s nod to proceed with the LRT 3 project should be viewed positively, as MRCB will continue to become the PDP, albeit the proposed ‘fixed contract’ mechanism may potentially contribute to lower earnings compared with pre-agreed PDP fees,” it said in a report.

It added that the asset-monetisation exercise, including the disposal of the Eastern Dispersal Link and stakes in its Bukit Jalil land, is expected to strengthen MRCB’s earnings and balance sheet.