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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 24 May 2019, 11:10 AM

 

Construction & Property - Bandar Malaysia “Revived”

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The Government announced last Friday that it has decided to reinstate the Bandar Malaysia Project that was terminated in May 2017, and which also retain IWH-CREC Sdn Bhd as the project’s master developer. IWH-CREC is a joint venture entity between Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (CREC), a joint venture (JV) formed to take up 60% of Bandar Malaysia Sdn Bhd. The project, which was thought to have an estimated gross development value (GDV) of up to RM200bn earlier is now reported to have GDV of RM140bn, and will see some adjustments to its original plan, which include the construction of a People’s Park, 10,000 units of affordable homes, Bumiputra participation throughout the project, and priority for the use of local content in the construction process. This development comes as a positive surprise and undoubtedly brightens the prospects of the local construction sector. Nevertheless, details of the project particularly on the cost remains unknown pending finalization by the consortium. While we maintain our Neutral ratings on both sectors at this juncture, trading opportunities abound, particularly for construction-related stocks.

  • The Bandar Malaysia project that had been terminated in May 2017 is a mixed-use, transit-oriented development (TOD) in Kuala Lumpur and planned as a central transport hub with connections to KL HSR, MRT, KTM Komuter and ERL plus 12 other highways. It is meant to transform a 486-acre former military base into a global hub to further attract high impact global finance, technology and entrepreneurial firms. The project is expected to positively benefit urban development, attracting foreign direct investments and generating an expected GDV of RM140bn. It will draw major international financial institutions, multi national corporations (MNCs) and Fortune 500 Companies to locate their regional headquarters in Bandar Malaysia. We also understand that tech giants such as Alibaba and Huawei have also manifested interest to establish their ICT centers in the area. The IWH-CREC led consortium have been asked by the Government for an advance payment of RM500m in addition to the original deposit sum of RM741m, within 60 days to reinstate their participation in the project.
  • To re-cap, the IWC-CREC consortium had planned to launch the first phase of the Bandar Malaysia development, which had a GDV of RM50bn to RM60bn in 2017 with a development period of five years. The first phase is also said to include the development of 5,000 units of affordable homes. Back then, the whole 486-acre development is estimated to have three to four phases taking up to 25 years with a total GDV of around RM200bn. Among the incentives given to the development of the project back then included a 10-year income tax exemption and eight years of exemption from stamp duty, as well as real property gains tax and withholding tax and IWH CREC and its wholly owned subsidiaries would also be given exemptions from import duty on selected construction materials which were not manufactured in Malaysia. The latest press release from the Prime Minister’s office did not mention any of these incentives however.
  • Expecting some changes to benefit local construction-based players. This development comes in as a positive surprise as it is being announced just a few days after the ECRL project. The project was subsequently retendered after the termination, though the process

had been somewhat quiet after rounds of bids. In July last year, the ministry’s officials disclosed that there were “zero” developers who had expressed interest in the project. Reinstatement of this project is an obvious shot-in-the-arm, particularly to the local construction sector. Given the greenfield nature of this project, players exposed to the initial infrastructure-based phases (access roads, earthworks, water and sewerage treatment plants, substantial piling works) could be sizeable opportunities. Within our universe, big names like Gamuda, IJM Corporation and

WCT Holdings could be beneficiaries for the construction works. Specialist contractors such as Advancecon Holdings (not rated) for earthworks, Econpile Holdings (not rated) and Pintaras Jaya (not rated) for piling, Lafarge Cement (not rated) and Tasek Corporation (not rated) could also be beneficiaries. This “re-award” to the IWH-CREC Sdn. Bhd. consortium which was chosen in an international open tender exercise participated by over 40 world renowned companies, including from Japan, Australia and the Middle East is expected to rerate Iskandar Waterfront Holdings (not rated). That said, details are still light at this juncture on the actual investment/land cost the JV is forking out for the mammoth development. Other beneficiaries in our view are Malaysian Resources Corporation (not rated) which was the joint-venture partner under the Bandar Malaysia Integrated Transportation Terminal and MMC Corporation (not rated) for the potential revival of Bandar Malaysia MRT 2 underground stations. Back in 2016, we understand that IWH-CREC also signed an MoU with a consortium of international Chinese and Malaysian banks to provide funding for investors in the Bandar Malaysia project which included local banks such as CIMB Bank, Malayan Banking, RHB Bank and

Affin Bank. As such, we do not discount the participation of local banks to fund the development. As for the property sectors, we believe the impact will be muted, given current oversupply of commercial space and soft demand due to affordability and financing issues. That said, the spillover effect (i.e. high value job creations) from the development should be positive to spur the demand especially the high-end segment in the long term.

Source: PublicInvest Research - 22 Apr 2019

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