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LRT, MRT, what's next? Bullet Train (Construction sector June 7, 2010)

LRT, MRT, what’s next? Bullet Train?

THE BUZZ

The Edge reported today that Kuala Lumpur could have its own Mass Rapid Transit (MRT) system, which would serve to complement the monorail and Light Rail Transit (LRT). Sources claimed that the Govt is in the final stages of evaluating the project. At least 2 industry players have been indentified for the job, namely Gamuda and MMC Corp.

OUR TAKE
Less talk and more action, please. We find this piece of news rather surprising considering that the much talked about RM7bn LRT extension has yet to kick off. How is the proposed MRT going to complement the LRT when plans for its extension have yet to be finalized? For example, we understand that the Ampang line’s alignment may be altered as some “well connected” developers have been lobbying for the route to pass through their developments.

Also, the proposed new Kota D’sara-Cheras line, which is supposedly to pass through Kuala Lumpur city centre, has not even been concluded. We do not expect the proposed MRT job to kick off anytime soon, if at all.

The “what if” question. Should the proposed MRT be implemented, we think that it is likely to be an underground circle line within Kuala Lumpur city centre. The existing LRT lines will serve as feeders into the circle line. Players such as Gamuda and MMC stand a good participating chance here if this proposal is implemented. Recall that the Gamuda-MMC JV constructed the underground 4km SMART Tunnel. Also, Gamuda was previously involved in the construction of the Kaohsiung MRT in Taiwan.

Turning cautious. We are turning cautious on the sector. In our view, the bulls of there being more positive news flow could be offset by the bears in the form of tightening Government coffers, implementation delays and spiraling material costs. As such, we are altering our sector rating from Overweight to UNDER REVIEW, with a downside bias. There are no changes to our estimates and calls for Gamuda (NEUTRAL, TP: RM2.75) and MMC (TRADING BUY, TP: RM2.54).
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