CIMB Research retains underweight on construction after ECRL scrapped

  • Business
  • Thursday, 23 Aug 2018

DUNGUN, 27 Mac -- Kerja-kerja membina terowong bagi projek Laluan Rel Pantai Timur (ECRL) Seksyen 4 sedang giat dijalankan ketika lawatan pemberita di tapak pembinaan berkenaan di Bukit Bauk hari ini.ECRL ialah projek berimpak tinggi dibawah Rancangan Malaysia Ke-11 (RMK11) yang akan menyaksikan pembinaan laluan rel yang bakal menghubungkan negeri-negeri Pantai Timur dengan Lembah Kelang.Sekurang-kurangnya 44 terowong sedang dibina di beberapa kawasan sepanjang pembinaan ECRL sejauh 688 kilometer itu.--fotoBERNAMA (2018) HAK CIPTA TERPELIHARA

KUALA LUMPUR: CIMB Equities Research is maintaining its Underweight rating on the construction sector following the cancellation of the East Coast Rail Link (ECRL).

“The ECRL’s cancellation is a negative surprise considering the recent newsflow that hinted at a likely scaled-down version in order to avoid penalties,” it said on Thursday.

The research house said that cancelling the ECRL, in its view, underscored mega rail contracts’ downturn in 2019.

“We retain Reduce calls on Gamuda and Lafarge and a Hold call on IJM Corp,” it said.

The upside risk is a revival of rail jobs such as the RM45bil MRT 3. In 2H18, key sector events to look to are 1) 11th Malaysia Plan mid-term review on Oct 18, and 2) Budget 2019 on Nov 2.

CIMB Research said while no civil works packages for the ECRL have been awarded to public-listed local contractors, it viewed the project’s cancellation as an opportunity loss for those seen to have strong chances of securing ECRL jobs. 

These include IJM Corp, Gabungan AQRS and Econpile Holdings.

IJM was deemed to have a strong chance of securing the spur line into Kuantan Port.

AQRS was likely to grab a sizeable above ground scope leading to the KotaSAS tation in Pahang, while Econpile was a favourite to secure piling works jobs.

For HSS Engineers, it was awarded the feasibility, design, and construction supervision package of the ECRL.  As at June 2018, the ECRL job’s outstanding value of RM130.3m made up 30% of its total non-water order book of RM411m. 

“We estimate that at the minimum, it will have to cancel out RM80m revenue of the outstanding contract value, for the construction supervision works,” it said.

Lafarge Malaysia, meanwhile, had secured a two-plus-two-year contract to supply cement for ECRL, valued at RM270m.

It was reported Malaysia will have to pay compensation for cancelling the ECRL, with the final sum to be negotiated soon. 

Prime Minister Tun Dr Mahathir Mohamad said the government will negotiate for the lowest cost possible. Note that project owner Malaysia Rail Link Sdn Bhd (MRL) had drawn down RM20bil of loans from financier The Export-Import Bank of China (Exim Bank) as at end-April 2018, at 13% physical completion.

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