YTL Corp pulls off surprise

Contractor’s JV is one of two PDPs for KL-Singapore HSR project

YTL Corp Bhd has again caught the market by surprise with its recent win of a portion of the job in the multi-billion ringgit Kuala Lumpur–Singapore High Speed Rail (HSR) project.

In the run-up to the 14th General Election, MyHSR Corp announced the appointment of two project delivery partners (PDPs) for the HSR project. They are the joint ventures (JVs) of Malaysian Resources Corp Bhd with Gamuda Bhd (MRCB-Gamuda JV) and YTL Corp’s Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd with TH Properties Sdn Bhd (YTL-THP JV), a subsidiary of Lembaga Tabung Haji.

The announcement, which came two days before the parliament is dissolved, took the market by surprise.

Many were not expecting such a major development to take place before a general election, considering that the HSR project is the most prestigious development that will involve two countries over the next seven years.

Nevertheless, the latest win puts YTL as as the top beneficiary of rail construction projects, sharing the limelight with companies such as Gamuda Bhd and George Kent (Malaysia) Bhd. Until now, both Gamuda and George Kent have been the favoured stocks among analysts as a major proxy for new rail contracts in the country.

In the span of four months, YTL, which built the Express Rail Link (ERL) in 1996, has bagged two major rail projects.

In December, it received a rail package worth RM8.6bil for the Gemas-Johor Baru electrified double-track railway project.

As a PDP, YTL-THP will be responsible for designing and delivering the civil works of the KL-SG HSR project at an agreed cost and within the schedule of completion.

Apart from YTL and THP, the other partner in the YTL-THP JV is said to be the SIPP group, which is linked to the Johor Palace.

The SIPP group has bagged a few federal government-sponsored projects in the state following its partnership with the YTL group, including the RM8.6bil Gemas-Johor Baru double-track project.

The Gemas-Johor Baru double-track project involves the construction of 197km of double tracks, stations, electric trains, depots, land viaduct, bridges, and electrification and signalling systems.

Back to the HSR project, the MRCB-Gamuda JV has been selected for the northern portion of the alignment, while YTL-THP has been selected for the southern portion.

The job scope of the PDP to oversee civil works contracts for the HSR project between Bandar Malaysia and the southern tip of Johor, is by far the biggest and most prestigious railway contract so far.

According to CIMB Research, the combined value of the civil works at HSR is estimated at RM30bil-RM40bil and the PDP fee is 6% of total civil works.

The 6% figure is similar to the amount given to PDPs managing the works in the the mass rapid transit (MRT) projects.

CIMB estimates that the MRCB-Gamuda JV will manage contracts worth about RM20bil-RM23bil, assuming its scope of work involves the stretch between Bandar Malaysia to the Malacca-Johor. The portion is about 65% of total works.

The value of civil works to be under the purview of the YTL-THP JV is about RM10bil-RM12bil.

The research house points out that unlike the role of the PDPs in the MRT works, there is a possibility that the PDPs of HSR project would be allowed to participate in the construction works.

“We understand that the tender for HSR’s civil works is only applicable to local contractors,” it said in a report yesterday.

CIIMB targets that the civil work for the HSR project to start in early next year.

Shares of YTL has risen more 5.2% year to date.

It is worth noting that YTL’s share price has seen a 14-month decline since 2016, before surging almost 39% in early January this year to RM1.55, following the announcement of it landing the job to build the Gemas-Johor Baru double-track project.

Yesterday, YTL closed at RM1.43 a share, rising more than 9% after announcing its PDP role in the HSR project.

The JVs of Gamuda-MRCB and YTL-THP beat a formidable consortium involving IJM Corp Bhd and Sunway Construction Bhd for the PDP job.

IJM and Sunway partnered Maltimur Resources Sdn Bhd, a company linked to the influential Tan Sri Bustari Yusoff of Sarawak and Jalinan Rejang Sdn Bhd.

Maltimur Resources and Jalinan Rejang were the PDP for the Pan-Borneo Highway.

“YTL-THP started as underdogs when the bidding started.

“The strongest point was YTL’s link to SIPP in the Gemas-Johor Baru project,” said a contractor.

With the PDP for the civil works portion being settled, the other major portion of the HSR project that is yet to be dished out is the mandate for the company to handle the operations and rolling stock called Opco and AssetsCo. The tender has been opened and it would be decided jointly by MyHSR and its counterpart in Singapore.

Speculation is rife that YTL could be bidding for the job to handle the operations or what is known as the tender for OpCo.

Analysts had pointed out that the OpCo tender is relevant to YTL, given its experience in operating the 45%-owned ERL.

The ERL is a dedicated train service from Kl Sentral to KLIA and runs faster than normal trains.

Meanwhile, for the AssetCo, so far George Kent has formed a collaboration with Siemens, Alstom, Ferrovie dello Stato Italiane and the PORR group to tender for the job. Another contender for the AssetCo is MMC Corp Bhd that has formed a joint venture with a Japanese consortium.

Analysts estimate the AssetsCo tender, which closes in June, would comprise RM20bil of the overall RM60bil HSR cost.

UOB Kay Hian Malaysia Research estimates that the construction period for the civil work of the HSR project would take about 6½ years.

“Assuming the 2026 timeline is intact, contracts for civil construction works should be awarded the latest by 2019,” it says.

It adds that physical construction (subcontracting) works could benefit companies such as Gabungan AQRS, WCT Holdings, Econpile, Ahmad Zaki, Muhibbah Engineering, Gadang and TSR Capital.


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