According to The Edge, PM Tun M stated that the Government intends to revive the HSR but costs must be trimmed down. Previously awarded PDP roles were given to MRCB-Gamuda and YTL-TH Properties and will likely remain frontrunners. The revival of HSR would serve as a rerating catalyst for the sector. We are likely to turn bullish should anything more concrete regarding the project turn up. For the time being absent of further details and clarity on timeline, we maintain our NEUTRAL stance.
NEWSBREAK
HSR comeback. According to The Edge, PM Mahathir during the signing ceremony for Bandar Malaysia (RM140bn) stated that Government intends to revive Kuala Singapore High Speed Rail (HSR). However, further adjustments must be made to trim down the costs potentially through downscaling as well as reducing its specifications (slower trains). Bandar Malaysia is also slated to house one HSR station serving as a transportation hub.
HLIB’s VIEW
Timeline recap. In Sept 2018, Dato’ Seri Mohamed Azmin Ali said at a media conference Malaysia and Singapore have agreed to defer the construction of the HSR with deferment period lasting through to May 2020. Subsequently, technical and commercial advisory consultants have been appointed with findings to be concluded by Dec 2019. According to news reports, Malaysia may have incurred up to RM500m in penalties if the project is officially cancelled with the Singaporean side having spent c.SGD250m up to Sep 2018.
Project description. The previous alignment of the HSR spanned 350km from Singapore to KL with 8 stations at Jurong East, Iskandar Puteri, Batu Pahat, Muar, Ayer Keroh, Seremban, Putrajaya and Bandar Malaysia. Based on the old alignment, HSR was divided into two stretches with the northern portion covering Melaka, Negeri Sembilan and Klang Valley while southern stretch will be in Johor. Originally, HSR was touted to cost RM110bn with a construction period of 6 years. Infra works for the Malaysia stretch were projected at RM40bn which would roughly be split equally between the northern and southern sections. Roughly 60 civil works packages were expected to be awarded previously.
Potential beneficiaries. Under the previous regime, PDP roles were awarded with northern portion (Bandar Malaysia station to Melaka station) secured by MRCB Gamuda JV and southern portion (Johor) was clinched by YTL-TH Properties JV. While we reckon previous PDP winners remain frontrunners to secure contracts, we believe IJM (HOLD; TP:RM2.22) and Suncon (BUY; TP:RM2.30) will emerge as stronger contenders this time around as both have strong financial capacity and should materially benefit from a shift towards an open tender system. Recall that IJM and Suncon previously formed a four party consortium including Jalinan Rejang Sdn Bhd and Maltimur Resources Sdn Bhd to participate in PDP tenders that were ultimately unsuccessful. While it is still too early to try and pin point the potential work package winners, we expect the usual active construction players such as IJM, SunCon, WCT, AQRS, TRC, Ahmad Zaki, Mudajaya, MRCB and Gadang to actively bid for a slice of the pie.
Maintain NEUTRAL. The revival of HSR would serve as a rerating catalyst for the sector. We are likely to turn bullish should anything more concrete regarding the project turn up. For the time being absent of further details and timeline clarity, we maintain our NEUTRAL stance.
Source: Hong Leong Investment Bank Research - 18 Dec 2019
