MRT3 gives earnings visibility cheer to firms

MIDF Research said this will keep construction players busy for the next eight years until 2030 with strong order book replenishment, whilst providing them with the earnings visibility.CGS-CIMB Research said Gamuda Bhd will likely be the frontrunner for the MRT3 project. (File pic shows Gamuda workers training in tunnelling.)

KUALA LUMPUR: The Mass Rapid Transit 3 (MRT3) Circle Line project, which now has a price tag and timeline attached to it, is set to provide the muted construction industry with much needed clarity and direction.

It was announced on Tuesday that the MRT3 project will have an estimated cost of RM31bil and be fully operational by 2030.

MIDF Research said this will keep construction players busy for the next eight years until 2030 with strong order book replenishment, whilst providing them with the earnings visibility.

“While there could potentially be delays in the roll out of the project due to multiple factors, we believe that the improving inflow of jobs, domestically and overseas, will be able to keep most of the construction companies under our coverage engaged until they are able to start reaping the fruits of the MRT3,” it said in a report yesterday.

CGS-CIMB Research said Gamuda Bhd will likely be the frontrunner for the MRT3 project.

It noted that civil works (excluding systems works) are split into above ground, underground and 31 stations.

“MRT 3 will span 51km, of which 40km will be above ground while 11km will be underground. Based on the benchmark RM1bil cost per km, the total cost of the underground scope works out to RM11bil, being the largest civil works package.

“This is positive for Gamuda as the MMC – Gamuda joint venture is likely to emerge as the frontrunner for the underground turnkey portion, given its MRT 1 and 2 track record.”

Additionally, RHB Investment Bank said Sunway Construction could also be a potential beneficiary, having been awarded RM1.4bil worth of jobs for the MRT2 project.

“Other contractors that could stand a chance to participate in MRT3 include IJM and Malaysian Resources Corp Bhd,” it said. Despite the latest active news flow on the MRT3, RHB Investment Bank said concerns remain on the possibility of further delays in the rollout of tender packages.

“The MRT3 project will be financed via a hybrid funding, which entails bonds including sukuk issuances, government guarantees and deferred payments.

“No mention has been made of any private funding initiatives, but this should not be ruled out, given the country’s funding limitations.

“With that in mind, contractors are likely to bear some funding risks of the MRT3 project, should the private funding initiative be implemented.”

With the MRT3 project being set in motion, MIDF Research said it is hopeful that this would pave the way for the government to review and potentially revive previously canned developments, such as the Kuala Lumpur-Singapore high-speed rail.

“All factors considered, we maintain our positive recommendation over the construction sector on the back of our optimistic outlook and economic recovery, especially with the MRT3 ready to kick off soon.”

With that in mind, there is also a smaller cap company, OCR Group Bhd that is likely to be benefited from the mega projects. The company had previously involved in project management consultation services for ECRL, and more earnings visibility is poised to benefit OCR for the financial year to come.

We take Gamuda and OCR as our top stock picks.