PETALING JAYA: While the Penang South Reclamation (PSR) project has shown positive progress in obtaining the relevant approvals, UOB Kay Hian is cautious about the commencement of the project due to the absence of capital outlay.
The research house expected construction to only commence if both the federal and state governments were able to provide some capital outlay, as well as partial support from SRS Consortium via internally-generated funds.
“We opine that the Penang Transport Masterplan Project (PTMP) project will only begin if issues such as the initial funding are resolved prior to the project’s commencement.
“SRS Consortium may internally generate funds amounting to RM2bil for the reclamation of the first island under the project,” said UOB Kay Hian in its report.
The Penang state government has recently received approval for the Environmental Impact Assessment (EIA) report for the PSR project.
The second EIA approved by the Department of Environment (DOE) under the RM46bil PTMP allowed the state government to proceed with the island reclamation project totalling 1,800 ha.
GAMUDA BHD owns a 60% stake in SRS Consortium, which is the project delivery partner for PTMP.
Gamuda is expected to call for a tender to reclaim the three islands in the third quarter of 2019.
The group is also expected to dish out PSR contracts in the first quarter of 2020.
Reclamation will begin with Island A measuring 930ha, which will house industrial companies – similar to Bayan Lepas Free Industrial Zone.
“Our recent engagement with Gamuda suggested that SRS Consortium would ideally prefer both the federal and state governments to fund at the initial stage of the project and we are expecting other relevant development banks to be able to provide loans for the PDP to begin the project.
“Also, we do not expect Gamuda to use the proceeds from the toll disposal of RM2.36bil to kick start the project as we reckon the proceeds will be used for future capital expenditure in relation to the PTMP construction (subject to the government being able to provide initial funding) and its plan to strengthen its presence in overseas markets, particularly Australia,” said UOB Kay Hian.
The research house estimated that Gamuda’s target price can be enhanced by 30 sen per share based on the project delivery partner fees of over 10 years of project development.
The island reclamation project is subject to the 23 conditions put forth by relevant government agencies and non-governmental organisations.
Some of the conditions to be fulfilled included compensating the more than 900 fishermen with low-cost houses in the Bayan Lepas area, planting artificial corals to sustain the marine ecosystem around the islands, as well as sourcing sand for the reclamation from legitimate sites.
Recall that the first EIA approval was granted for Penang Island Link in April 2019.
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