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Higher ECRL portion for local players works out to RM17.6b, says CIMB IB

 

KUALA LUMPUR (April 16): The higher allocation of works for local contractors for the East Coast Rail Link (ECRL) project is a positive for the construction sector, says CIMB Investment Bank (CIMB IB).

Prime Minister Tun Dr Mahathir Mohamad gave more details of the revived project at a press conference yesterday, revealing that 40% of civil works would be carved out for local players.

"A positive surprise is the increased benefits to local contractors, in the form of a higher 40% of total civil works exposure, compared to 30% based on the original deal. Working on the revised RM44 billion construction cost, the potential share of works for local players amounts to RM17.6 billion," said CIMB IB analyst Sharizan Rosely in a note April 15.

He added that the main focus for new tenders would be the realignment from Mentakab into Negeri Sembilan and Selangor — the new Southern Alignment — which will provide a direct link from Kuantan Port to Port Klang.

Sharizan added that the new Southern Alignment will leverage on the KLIA Express Rail Link (ERL) and the upcoming Mass Rapid Transit Line 2 (MRT Line 2) interchange in Putrajaya Sentral, addressing previous concerns on the project's passenger and ridership viability.

The new tenders for local contractors, however, are not expected to be rolled out so soon, as it depends on the completion of the new railway scheme design, public display of the new alignment and finalisation of land acquisition, which will likely be done over the next six months, he said.

"The ECRL news is overall positive to mitigate the downturn of contracts. However, we retain our sector underweight call given the average 43% run-up in share prices of rail contractors ahead of the ECRL's revival.

"Upside risk is a stronger momentum of new ECRL tenders and the review of other deferred rail contracts from 2018," said Sharizan.

The research house highlighted IJM Corp Bhd, Sunway Bhd (via Sunway Construction Bhd) and WCT Holdings Bhd as potential bidders of the upcoming tenders. — theedgemarkets.com

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