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Negative sentiments to continue to bog down construction sector, says CIMB Research

KUALA LUMPUR (May 23): The negative sentiments surrounding the impending review of billion ringgit worth of mega-infrastructure projects, some of which are at risk of being scrapped, is expected to bog down the construction sector during the first 100 days of the new Pakatan Harapan-led government’s reform agenda, according to CIMB Investment Bank Bhd Research.

“News of Pakatan Harapan making good on its promise to review all mega projects would heighten the risk to the construction sector. The government also seems to be weighing the option of scrapping some projects,” CIMB analysts Sharizan Rosely and Ahmad Kamarul Anwar Kamaruddin said in a sector report today.

“As this government intends to rein in public debt, there is the possibility that some projects will be axed. Attention has been given to the ECRL [East Coast Rail Line] and HSR [high speed rail],” they added.

Given that the big rail theme is “falling like dominos”, CIMB said it is retaining an underweight call on the overall construction sector, which is on “a bumpy rail track.”

“With this, we see pessimism brewing for Gamuda Bhd, YTL Corp Bhd and Malaysian Resources Corp Bhd – the three listed contractors that were awarded the scope of project delivery partner for the HSR,” they said.

Meanwhile, CIMB Research said Lafarge Malaysia Bhd could be at risk, as it had previously secured a two-plus-two-year RM270 million contract to supply cements for the ECRL project.

As the government place emphasis on projects with direct impact on public, CIMB Research said other rail-related projects that are at risk of being reviewed includes the mass rapid transit’s circle line (MRT3), and the greater Kuching light rail transit (Kuching LRT).

The 40km MRT3 was estimated to cost cost between RM35 billion and RM40 billion, while the Kuching LRT was appraised at RM11 billion.

“In our view, projects that fit the bill of benefiting the public would include urban rail infrastructure, namely the MRT3,” said Sharizan and Ahmad Kamarul.

With the new federal government wanting to conduct a review of all the mega projects approved by its predecessor, CIMB is of the view that the three-line Kuching LRT project may be at risk of being axed.

Going forward, Sharizan and Ahmad Kamarul said they “foresee more details on Pakatan Harapan’s prudent new infra rollout plans in the upcoming Budget 2019.” — theedgemarkets.com

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