CIMB Research retains overweight as mega rail projects’ awards imminent

The RM55bil East Coast Rail Link (ECRL) could have been cancelled as quickly as the HSR and MRT 3, but due to legal and loan drawdown issues, further talks with China are needed.

KUALA LUMPUR: CIMB Equities Research is retaining its overweight outlook for the construction sector, especially Gamuda, as the awarding of the mega rail projects is imminent.

It said on Monday that after January, the next course of action for most rail projects will be the contract award stage. 

The Mass Rapid Transit (MRT) three (circle line) turnkey contract will be awarded within 1Q18 while the East Coast Railway Link’s (ECRL) awards could possibly get the ball rolling in 2Q18. 

The Kuala Lumpur-Singapore High-Speed Rail’s (HSR) project delivery partner (PDP) scope is expected to be announced in mid-2018, while the AssetsCo award could be announced at end-2018. 

“Gamuda is our sector top pick with its strong tender visibility in all the rail projects,” it said.

Last Friday, Mass Rapid Transit Corp Sdn Bhd (said four consortia had submitted their tenders for MRT 3’s (Circle Line) turnkey role upon closing yesterday (Jan 18). 

Three consortia consist of Malaysian listed contractors: i) Sapura-TIEC Consortium; ii) MMC-Gamuda-George Kent JV; and iii Pacific-Mudajaya-JEC Consortium. 

Another bidder is the China Communications Construction Co Ltd (CCCC)-China Communications Construction Co (M) Sdn Bhd JV.

“We understand that financing options/proposals will be part of all tenders, in addition to the design and build proposals,” it said.

CIMB Research pointed out that although the intention of tendering out the project on a turnkey basis was to seek the lowest cost of funding, MRT Corp did not rule out resorting to the government’s special purpose vehicle Danainfra Nasional Bhd, the fundraiser for the first two MRT projects “in the event that the financing options are not favourable.” 

The targeted award timeline for MRT 3 is within 1Q18   

The research house was surprised that CCCC JV emerged as the sole foreign consortium, as we expected Japanese contractors to be keen on the design, build and finance role too 

“George Kent joins Gamuda and MMC Corp in a purely local consortium but with strong combined domestic rail expertise, in our view.

“MMC-Gamuda JV was the project delivery partner (PDP) and the builder of the underground portions for the first two MRT projects, while their partner George Kent is currently the project delivery partner (PDP) of the LRT 3 PDP, and a rail-systems works specialist.  

“Sapura Group has provided rail communications systems for MRT 2 and Keretapi Tanah Melayu (KTM) projects. Mudajaya has been awarded RM1.8bil worth of contracts for MRT 2 and LRT 3, mostly for viaduct construction.  

“CCCC is the main contractor for the RM55bil ECRL project, and is seeking to participate in other Southeast Asian rail projects.  

“While details of the other bidders are scarce, we suspect TIEC is the acronym for Top International Engineering Co, the foreign name of China’s state-owned Shaanxi Construction Engineering Group Corp. 

“Mudajaya’s two JV partners may be the engineering arms of multinational conglomerate Jardine Matheson, which have had roles in Thailand’s MRTA underground system and Hong Kong’s MTR trains,” said CIMB Research.