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Non–cancellation of LRT3 a short term reprieve for contractors, says CIMB Research

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KUALA LUMPUR (July 13): CIMB IB Research has maintained its “Underweight” rating on the construction sector after the Ministry of Finance (MOF) allowed the LRT 3 project to proceed but at a lower all-in cost of RM16.6 billion.

In a note yesterday, the research house said the LRT 3 completion is delayed by four years to 2024.

“Selected components of the project will not be built in order to significantly reduce costs. Five stations will be scrapped, while the 2km tunnel will be reviewed.

“The scaled-down version of LRT 3 will impact Sunway Construction Group Bhd, WCT Holdings Bhd, and IJM Corp Bhd,” it said.

CIMB Research said the decision by the MOF to not cancel the LRT 3 is a short-term reprieve for the contractors involved but is still net negative, as the eventual contract value and prevailing margins for all work package contracts as a result of the scaling-down phase could be lower, both for the PDP JV and contractors.

“There could be short-term trading opportunities on bombed-out LRT 3 contractors like Malaysian Resources Corp Bhd, IJM Corp, WCT, George Kent (M) Bhd (non rated), and Gabungan AQRS (non rated) but we remain negative on the overall rail outlook in 2H18 and retain Underweight on the sector,” it said. — theedgemarkets.com

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