MRCB (1651) - Construction - LRT 3 PDP award by mid-year
Recommendation: Over Weight
The unveiling of the six PDP candidates for the RM9bn LRT 3, as highlighted by Edge Weekly, was a positive surprise as it revealed two players that we think could end up as the frontrunners. They are the MRCB (Add)-GKent JV and Sunway (Add), which possess both the experience and excess capacity for rail jobs. According to the article, the PDP role could be awarded by mid-year, suggesting that construction could begin in 2016. This news supports our positive expectations of c.RM150bn worth of incoming jobs over the next 5-10 years. We anticipate more details on funding from the tabling of the 11th MP in May. Maintain Overweight. Gamuda remains our top big-cap pick. Muhibbah Engineering continues to be our preferred small/mid-cap stock.
What Happened
According to sources close to the Edge Weekly, six candidates have been shortlisted for the LRT 3’s project delivery partner (PDP) role. Among the companies mentioned, those under our coverage are Gamuda, MRCB, Sunway and WCT. The PDP role could be awarded by mid-year. There were no further details on project structure and funding.
What We Think
We believe the Gamuda-MMC JV will be less keen to pursue the LRT project as it has its plate full with the mammoth MRT job, although it will be ideal for the JV to take up the role given its success in MRT 1. We are unclear how aggressive the other two privately-held players are, i.e. UEM Group and Naza TTDI, and we think the WCT-AlloyMTD JV may find the competition challenging given WCT's lack of experience in domestic LRT and MRT jobs. We believe MRCB's JV may stand a good chance given its spare capacity for rail jobs and its experience in rail upgrades and running a transport-oriented development, such as the KL Sentral. The other player that has a strong advantage is Sunway in view of its track record in LRT, MRT and BRT. Assuming a 50% JV stake for MRCB, securing the PDP role will more than double its RM2.9bn order book. The PDP package will almost triple Sunway's RM3bn order book (100% stake). Working on a 6% PDP fee and a 70% proportion for above-ground work similar to the MRT, potential PDP profit contribution p.a. over a 4- to 5-year construction period is RM45m-90m. However, these values are very preliminary (see below for the likely alignment of LRT 3).
What You Should Do
Accumulate potential rail beneficiaries over the coming months, mainly Gamuda, MRCB and Sunway. There are signs pointing to a revival of sector newsflow ahead of the tabling of the 11th Malaysia Plan (MP) sometime in May 2015.
Source: CIMB Daybreak - 24 March 2015
Recommendation: Over Weight
The unveiling of the six PDP candidates for the RM9bn LRT 3, as highlighted by Edge Weekly, was a positive surprise as it revealed two players that we think could end up as the frontrunners. They are the MRCB (Add)-GKent JV and Sunway (Add), which possess both the experience and excess capacity for rail jobs. According to the article, the PDP role could be awarded by mid-year, suggesting that construction could begin in 2016. This news supports our positive expectations of c.RM150bn worth of incoming jobs over the next 5-10 years. We anticipate more details on funding from the tabling of the 11th MP in May. Maintain Overweight. Gamuda remains our top big-cap pick. Muhibbah Engineering continues to be our preferred small/mid-cap stock.
What Happened
According to sources close to the Edge Weekly, six candidates have been shortlisted for the LRT 3’s project delivery partner (PDP) role. Among the companies mentioned, those under our coverage are Gamuda, MRCB, Sunway and WCT. The PDP role could be awarded by mid-year. There were no further details on project structure and funding.
What We Think
We believe the Gamuda-MMC JV will be less keen to pursue the LRT project as it has its plate full with the mammoth MRT job, although it will be ideal for the JV to take up the role given its success in MRT 1. We are unclear how aggressive the other two privately-held players are, i.e. UEM Group and Naza TTDI, and we think the WCT-AlloyMTD JV may find the competition challenging given WCT's lack of experience in domestic LRT and MRT jobs. We believe MRCB's JV may stand a good chance given its spare capacity for rail jobs and its experience in rail upgrades and running a transport-oriented development, such as the KL Sentral. The other player that has a strong advantage is Sunway in view of its track record in LRT, MRT and BRT. Assuming a 50% JV stake for MRCB, securing the PDP role will more than double its RM2.9bn order book. The PDP package will almost triple Sunway's RM3bn order book (100% stake). Working on a 6% PDP fee and a 70% proportion for above-ground work similar to the MRT, potential PDP profit contribution p.a. over a 4- to 5-year construction period is RM45m-90m. However, these values are very preliminary (see below for the likely alignment of LRT 3).
What You Should Do
Accumulate potential rail beneficiaries over the coming months, mainly Gamuda, MRCB and Sunway. There are signs pointing to a revival of sector newsflow ahead of the tabling of the 11th Malaysia Plan (MP) sometime in May 2015.
Source: CIMB Daybreak - 24 March 2015
