Malaysia’s MRT Line 2 excites market, but contract awards may be a year away

Updated: Tuesday March 18, 2014 MYT 6:26:52 AM

MRT Line 2 excites market, but contract awards may be a year away

BY NG BEI SHAN

PETALING JAYA: News that the second line of the Mass Rapid Transit (MRT) has been approved excites the market, with big-cap construction stocks making notable gains.

Gamuda Bhd, the existing project delivery partner (PDP), gained the most, rising by 26 sen or 6% on expectations that it, along with joint-venture (JV) partner MMC Corp Bhd, would also win the PDP for MRT Line 2.

Other construction stocks that saw gains were IJM Corp Bhd (7 sen) and WCT Holdings Bhd (4 sen).

MMC shares closed 2 sen higher at RM2.81.

The initial plans for MRT Line 2 was said to connect Sungai Buloh with Putrajaya via places like Kepong, Sentul, Kampung Baru, the Tun Razak Exchange and Serdang.

However, contracts for MRT Line 2 may be some time before they are awarded.

When contacted, Mass Rapid Transit Corp Sdn Bhd chief executive officer Datuk Wira Azhar Abdul Hamid told StarBiz tenders for the works of MRT Line 2 would only begin more than a year from now after it received a formal notification from the Government.

“As far as the project (MRT Line 2) is concerned, it is approved at the Cabinet level. We will have to wait for formal notification from the Government before we can prepare for the bidding process,” he said, adding that it would take nine to 12 months to get things ready before calling for a tender.

Analysts generally viewed the development positively as some had expressed concerns on possible delays on the MRT line.

They singled out the existing PDP party (MMC-Gamuda) as the likely main beneficiary of contracts from MRT Line 2.

However, they noted that detailed geological surveys, environmental impact assessments, a period for public display for feedback and land acquisitions needed to be carried out before construction could begin.

An analyst from Hong Leong Investment Bank Research said he expected the MRT’s existing contractors to be the frontrunners for the second line.

“MRT Corp may consider awarding the jobs to existing contractors because they already have the track record and have invested in the machinery,” he said.

But he reckoned that in the case of Gamuda, the possibility of winning the PDP role “had already been factored into” its share price. He is maintaining his target price of RM4.62 for the company.

Another analyst said he anticipated some of the contractors working on the first MRT line to be already suffering from margin compressions due to unforeseen costs.

He also raised concerns that issues like land acquisition in Selangor, which required the state government’s approval, could face some challenges.

“Previously, the state government had given the pre-approved alignments for MRT Line 1, but the same may not happen so easily for Line 2,” he said.

Kenanga Research analyst Iqbal Zainal, meanwhile, concurred that there might be hiccups where land matters were concerned, but that any disagreements between the state and federal governments would not be a setback for the project getting the go-ahead, as the development was of public interest.

“They will have to resolve it or come to an understanding for the benefit of the people.”

On top of that, he said MRT Corp had managed negotiations with land owners for Line 1 well.

He opined that the Government would have the same terms for the PDP for the second line as the latter played an important role in keeping the cost and schedule within target.

“The MMC-Gamuda JV has done a good job in its PDP role in keeping progress of the project on track. The Government may not want to compromise quality to save on the project,” he added.

He expects MRT Line 2 to be worth RM25bil to RM30bil and more trading interest in construction counters once MRT Corp starts awarding the contracts.