There was a slew of mega development projects announced over the weekend benefiting states like Penang, Negeri Sembilan, and Johor. MIDF has views and thoughts on the announcements.
Penang LRT, there is no certainty on the implementation of the Penang light rail transit (LRT) project though more clarity is needed on the nitty gritty, which will be ironed out when the Prime Minister discusses the matter with the state government within the next fortnight. Transport Minister Anthony Loke said the Federal Government agreed in principle for the first route to be from Bayan Lepas to Komtar but the implementation and others will be detailed later.
It was previously reported that the 26.8km elevated Komtar-Bayan Lepas line with 23 stations would cost RM9.5b and this would have been funded by proceeds from the Penang South Islands (PSI) reclamation project, which has just received the Environmental Impact Assessment (EIA) approval last month. Now that the Federal Government will fund the Penang LRT, the state government is considering scaling down the PSI project or postponing it. In light of these new developments, these are some matters that will need to be sorted out between both the Federal and State Governments, and also its project delivery partner SRS Consortium Sdn Bhd, of which 60% is held by Gamuda (BUY, TP: RM5.04) and the remaining 40% held equally by Loh Phoy Yen Holdings Sdn Bhd and Ideal Property Development Sdn Bhd.
Some of the questions that arise from the announcement:
Is the Federal Government fully funding the entire LRT project or only the first phase? Are there considerations for the five other proposed lines under the Penang Transport Master Plan, namely the Ayer Itam Line (13km, 13 stations), Tanjung Tokong Line (7km, 8 stations), George Town-Butterworth Line (18km, 8 stations), Raja UdaBukit Mertajam Line (28km, 21 stations), and its extension to Kepala Batas (13km, 10 stations) and lastly the Permatang Tinggi-Batu Kawan Line (14km, 15 stations) and the extensions to Bukit Tengah/Seberang Jaya (15km, 17 stations) and to Nibong Tebal (11km, 6 stations)? In total, these would be 146km of rail and 121 stations.
Will it be a federal project or does it remain a state project? If the former, will the Federal Government re-evaluate the project in terms of the cost, alignment, and stations?
How will all these affect the proposed PSI project?
Negeri Sembilan developments. The RM1.2b allocation will include RM600m for an exit road from a proposed new toll to the Seremban Central Ring Road, RM280m for the construction of Education Ministry facilities, and RM160m for a road and a bridge to link Bukit Pelandok and Sungai Pelek. These are basic infrastructure projects that will generate job flows to benefit both large and small construction outfits.
KL-Singapore HSR feasibility. There was a report that two out of the five companies shortlisted by the government are in talks with potential partners on the feasibility of carrying out the mega rail project, which was suspended in 2018 and subsequently terminated in 2021 during the height of the Covid-19 pandemic that saw Malaysia compensating Singapore RM320.3m. It reported that Berjaya Corp (not rated) had high-level discussions with China’s Sinohydro Corp, a hydropower engineering and construction firm while YTL Corp (BUY, TP: RM0.83) is said to be trying to rope in China rolling-stock manufacturer CRRC Corp. The other three shortlisted are MMC Corp, WCT Holdings (BUY, TP: RM0.58) and MRCB (BUY, TP: RM0.40). The research house notes that all these are still very preliminary at this stage. Recall that the Government is open for the HSR revival as long as it is funded by the private sector.
New flows on basic infrastructure jobs and talks/proposals of mega infrastructure projects are sure to jolt excitements in the construction sector that has been rather muted over the past years, relative to other sectors. The house expects FY23 to be a better year for contractors, especially given the boost by Budget 2023, with a slew of infrastructure works and public utilities that would translate to stronger job flows this year.
MIDF still thinks that the highlight this year will be the rollout of MRT3, which has been delayed since Dec-22 due to a review by the Government to bring the cost down from RM50b to RM45b. Preferred names are still those with robust balance sheets and considerable overseas presence, such as Gamuda (BUY, TP: RM5.04), Sunway Construction (BUY, TP: RM2.00) and IJM Corp (BUY, TP: RM1.90).
