Local contractors not in ‘rail’ danger, say experts

The approval for the MRT and LRT expansion lines, although at reduced costs, will still benefit Malaysian companies in the rail industry. (Bernama pic)

KUALA LUMPUR: Despite doubts over the proposed East Coast Rail Link (ECRL) and the Kuala Lumpur–Singapore High-Speed Rail (HSR) projects, analysts are upbeat that the continuation of other projects will keep local contractors afloat.

For example, the Light Rail Transit (LRT) 3 and Mass Rapid Transit (MRT) 2, with a combined value of RM40 billion, will likely sustain industry earnings in the immediate to medium-term, said MIDF Research analyst Danial Razak.

“While the cost revisions were significant, we believe the move is rational.

“Should the costs be maintained in defiance of economic discipline, we do not rule out the possibility of the government shouldering a bigger fiscal risk, moving forward.

“Nonetheless, getting the green light to continue with such large-scale projects is actually a big relief for the industry as a whole,” he said.

Danial remained bullish on the outlook for the local rail industry as these projects would continue to benefit companies like Sunway Construction, WCT Holdings, Malaysian Resources Corporation Bhd (MRCB), Gamuda Bhd, Muhibbah Engineering (M) Bhd and Gabungan AQRS Bhd – the big-time contractors involved in the rail industry.

He noted that WCT had secured three LRT3 contracts with a combined value of RM1.7 billion for jobs involving depot, stations and viaduct works.

At its recent extraordinary general meeting, MRCB also announced that construction of the LRT3 projects was expected to resume in the second half of 2019 after only 10% of the project works have been completed so far.

The project was stalled for almost a year, pending review in light of the revelation by the finance ministry that the total cost had ballooned to RM31.65 billion.

The ministry then approved the 36km-long track project for RM16.3 billion, down 47% from its original cost.

“While some train depots will be downsized, we think the impact on WCT’s package will be minimal. This is considering the fact that phase one of the Johan Setia depot is nearing completion.

“Muhibbah Engineering has also clinched noise barrier packages for LRT3 and MRT2. We believe the impact on these packages will also be minimal,” Danial said.

At the close of trading on Friday, Sunway Construction was 2 sen better at RM1.57, WCT Holdings perked half-a-sen to 84 sen, Gamuda improved 3 sen to RM2.79, Muhibbah Engineering was flat at RM2.92, Gabungan AQRS shed 2 sen to RM1.02 and MRCB slipped 1 sen to 72 sen.

Asked about future challenges, Danial said the contractors would move towards executing and completing the projects.

The conversion from project delivery partner to turnkey structure means contractors would need to bear the execution risk, he said.

“Managing the risk well will likely translate to better margins in terms of the bottom line.

“In terms of prospects, we think the revival of the ECRL project is most uncertain in the near-term and negotiations could still be prolonged due to challenges in reaching an amicable agreement among the stakeholders,” he said.

Prime Minister Dr Mahathir Mohamad was reported as saying that the status of the RM81 billion project was still unsure at this point of time.

Shahrin Nasir, deputy director (Industrial Linkages and Commercialisation) at Universiti Teknologi Mara’s Malaysia Institute of Transport, said that if the ECRL project was cancelled and the HSR postponed, it would affect the development of the rail sector.

“However, if Keretapi Tanah Melayu Bhd can upgrade its electric train services, it would ensure that the rail industry remains important in the country.

“Current rail services need to be improved for the industry to remain relevant,” he said.