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RHB Investment Research Reports

Author: rhbinvest   |   Latest post: Tue, 19 May 2020, 11:57 AM

 

Construction - RTS: Ready to Serve in 2026

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  • Maintain NEUTRAL with Top Picks Gabungan AQRS, Kerjaya Prospek and Hock Seng Lee. With the RTS negotiations concluded, focus should shift to the HSR. As things begin to roll ahead of the Budget 2021 and 12th Malaysia Plan announcements, we reiterate our view that 2H20F may offer fresh catalysts and shed more light on potential earnings visibility. Also, MRT3 staging a comeback appears plausible. We keep our call for now pending further developments in the sector.
  • The cost to build the Johor Bahru-Singapore Rapid Transit System (RTS) is c.MYR10bn. We understand that 61% of the cost will be funded by the Singapore Government and the rest by the Malaysian Government. Of the 4km length, 2.7km is in Malaysia while 1.3km will be in Singapore. The RTS link will transit from the underground Woodlands North Station to the above-ground Bukit Chagar station via a 25m high bridge across the Straits of Johor.
  • RTS is now official. The total cost revealed suggests that contractors will likely derive more value from the project. We note that Malaysia, through its development expenditure, will bear 39% (MYR3.7bn) of the project cost. Meanwhile for Singapore, the cost looks to reach c.MYR5.8bn, bringing the total amount to MYR9.5bn. Considering the proposed station in Bukit Chagar will be elevated and connected to a high bridge structure, local piling players are likely to see more opportunities to participate.
  • Sizeable values for contractors. Should 70% of the total amount (MYR9.5bn) represent civil works, this should give c.MYR6.7bn of replenishment opportunities for both Singapore and Malaysian construction players. This also means that foundation and piling works of at least MYR300m (5% of civil works value) could be derived. For the Malaysia portion, a vertical cut into 10 civil work packages (excluding depot) may work out to an average value of c.MYR200m/package.
  • Potential beneficiaries are worth a closer look. We reiterate our view that contractors with presence in Johor as well as Singapore look to have an advantage. These include Pintaras Jaya, Kimlun and Sunway Construction. Both Sunway Construction and Kimlun have precast plants located in Johor while Pintaras Jaya is an active piling player in Singapore. Our checks with these companies also revealed that Gamuda, MRCB and IJM Corp are also keen to participate. Given its location in Johor, the project should offer job opportunities for local contractors in the state as well. Hence, we do not rule out a formation of a JV between listed and state local players, as this will enhance benefits to the state.
  • Upside risks to our call: The restoration of Mass Rapid Transit 3 (MRT3) and Kuala Lumpur-Singapore High Speed Rail (HSR) projects ahead of expectations. Downside risks are prolonged slowdown in the property market, longer-than-expected delays in progress works, and failure to secure new orders.

Source: RHB Securities Research - 3 Aug 2020

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Labels: GBGAQRS, KERJAYA, HSL

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