Some transparency seen in LRT extension shortlistings

Construction sector
According to the Syarikat Prasana Negara Bhd, 17 contractors have been pre-qualified to be the main contractor for the RM7 billion to RM8 billion light rail transit (LRT) extensions.

Also, 15 companies were pre-qualified as nominated sub-contractors for the fabrication and delivery of segmental box girders.

Prasana’s group managing director was quoted as saying that the final railway scheme has been submitted to the Department of Railways and is awaiting final approval from the government.

Construction will commence after the approval. There was no mention on whether both the Kelana Jaya and Ampang extensions will kick off simultaneously but we understand the priority is the first 9.2km stretch of the Kelana Jaya line.

The 32 main and sub-contractors were shortlisted out of 118 which submitted their pre-qualification tenders in December 2009.

Contractors vying for the main contractor role are the UEM Builders-Intria Bina joint venture (JV), IJM Construction Sdn Bhd, Sunway Construction Sdn Bhd, Gamuda Bhd, Loh & Loh Construction Sdn Bhd, JVs of WCT Bhd-Sinohydro, MMC Corp-Zelan Bhd, Ranhill Bhd-China Communication Construction Company Ltd, Fajarbaru Builders Sdn Bhd-Signatium Construction Sdn Bhd, BPHB-Tim Sekata, Zabima-Leighton and MTDC-Persys.

Others on the list are Muhibbah Engineering Sdn Bhd, Malaysian Resources Corp Bhd (MRCB), Trans Resources Corp Sdn Bhd and Ahmad Zaki Sdn Bhd.

As for the sub-contractors, all of the main contractors are also present except for Gamuda, Loh & Loh Corp Bhd, Mudajaya Group Bhd and Trans Resources Corp.

Five companies under our coverage are in the running for the main contractor role — Gamuda (buy, target price RM4.45), IJM Corp (buy, target price RM6), MRCB (buy, target price RM2.25), Sunway Holdings Bhd (buy, target price RM1.95) and WCT Bhd (fully valued, target price RM2.25).

Based on balance sheet strength and past experience alone, we think Gamuda and IJM are the strongest contenders. In any case, IJM, MRCB, WCT and Sunway have also been shortlisted for the sub-contractor role which hedges their bets somewhat.

Another non-listed GLC contractor which we think is also a front runner is UEM Builders. While no indication on values has been given for the main and sub-contractor roles, we expect the chunkier portion to be skewed to the main contractor.

For the broader construction sector, it appears that Prasana  is trying to ensure more contractors benefit with even the shortlisting of subcontractors which is normally done by the main contractor. We think this is also positive as it ensures some transparency for the sector. — HwangDBS Vickers Research, April 29

This article appeared in The Edge Financial Daily, April 30, 2010.