Incoming jobs flows, but pace remains slow 

• We finally witnessing some progress, albeit slow pace, as the domestic construction industry is boosted by incoming positive news flows.

• ECRL works intensifying as CCCC has been awarded RM184m of jobs to Ho Hup and Gadang.

• For HSR, Malaysia and Singapore agreed to lengthen the deferment that was supposed to conclude at end-May 2020, to 31 December 2020.

• We reckon should both countries reinstate the HSR, this may serve as a prelude to the possible revival of Bandar Malaysia.

• Once Covid-19 impacts recede, we think there will be a more urgent need to stimulate the economy via the roll-out of high-multiplier projects

• Maintain our NEUTRAL rating on construction sector.

Signs of revival

Pursuant to the RM20bn stimulus package to revive the economy that was announced on 27 March 2020 to combat the economic impact from Covid-19 pandemic, we finally witnessed some progress on the construction front. Although the pace has been rather slow, the domestic construction industry has definitely been boosted by incoming positive news flows. The government has announced the progress on the ECRL and HSR and we believe this could spark a further developments on both projects.

East Coast Railway Link (ECRL)

CCCC has recently awarded two work contracts worth RM102m to Ho Hup Construction for the construction and completion of subgrade, drainage and culvert works on Section 6 of the ECRL. This subcontract works lie under the Chinese portion in Section B (Pahang stretch). Earlier, Gadang has secured two contracts (under Section 5&6) worth RM82m from CCCC for the construction and completion of subgrade earthworks and drainage. Given this, we reckon more newsflow in the immediate term is forthcoming, especially on the earthworks jobs, drainage works, bridges etc.

High Speed Rail (HSR)

Last week, the government announced that Singapore and Malaysia agreed to lengthen the deferment that was supposed to end at end-May 2020, to 31 December 2020. This is to enable both countries to discuss some of the proposed changes in the commercial and technical aspects of the project. In a similar announcement, Senior Minister cum International Trade and Industry Minister Azmin Ali will lead the Malaysian team that will facilitate the discussions. Given the pandemic Covid-19 impact that has severely hit both Malaysia and Singapore, it is no surprise that both countries delayed the decision to continue the project. Should the project revival materialise, we reckon that market interest would focus on Gamuda and MRCB shares, which were previously appointed as the PDP for northern part, whilst YTL and TP Properties were appointed as the PDP for the southern part.

Other projects could follow soon

We reckon should both countries reinstate the HSR, this may serve as a prelude to the possible revival of Bandar Malaysia. To recap, Bandar Malaysia was previously supposed to host the terminus of the HSR.

Source: BIMB Securities Research - 3 Jun 2020