Highlights

• MRCB-GKent snags PDP role. Various media sources reported that Prasarana has awarded the LRT3 PDP role to the MRCB-George Kent (GKent ) JV. To recap, apart from the MRCB-GKent JV, 6 other consortiums were also prequalified for the PDP role.

• Winner within expectations. We had earlier postulated that the MRCB-GKent JV stands to be the frontrunner for the PDP role. This is by virtue of MRCB’s experience with the ongoing Ampang line extension and as master developer for the KL Sentral transport hub. GKent on the other hand is currently undertaking the system works for the Ampang line extension.

• More on the LRT3. At a cost of RM9bn (ex land acquisition), construction of the LRT3 is expected to begin in 1Q16 and completed by Aug 2020. The LRT3 will span 36km from Bandar Utama to Klang with a total of 25 stations. Key areas that will be covered by its alignment include Bandar Utama, Tropicana, Glenmarie, Shah Alam town centre, Bukit Raja, Klang town centre and Bukit Tinggi.

• Work packages the milestone. With the PDP appointed, the next step would be the award of the various construction work packages which we expect to take place between now and 1Q16. We expect competition to be stiff for these packages as most listed contractors (Figure #2) have experience in undertaking the MRT and LRT extension. Despite that, there are a few contractors that stand out given their strong execution track record as highlighted below.

Risks

• Judging from the ongoing LRT extension which has seen its target completion delayed from end-2012 to 1Q16, execution is a key risk to watch out for. However, this risk could potentially be reduced given the presence of a PDP. Judging from the MRT, the PDP concept has worked rather well with minimal delays incurred.

Rating

• OVERWEIGHT
• The roll out of the LRT3 offers a major boost to the sector in terms of job flows. As it is, domestic contract awards are already robust with 1H15 numbers at RM8.8bn (+53% YoY). Stock Picks
• MRCB – As PDP, we reckon that MRCB stands to be prime beneficiary of the LRT3. At a 50% stake in the JV and 6% PDP fee (similar to the MRT), our FY16-17 earnings would be enhanced by RM31-41m or 26-28%. With the PDP role now in the bag we trim our SOP discount from 30% to 20% and raise our TP from RM1.19 to RM1.36 with BUY rating intact.
• SunCon – SunCon is perhaps the only contractor that has experience with all 3 major public transport projects, namely the LRT, MRT and BRT. As such, we reckon that it will emerge as a strong contender for the LRT3 work packages.
• Mitrajaya – Mitrajaya has undertaken the construction of 8 stations for the ongoing LRT extension. As such, we believe that it is in a strong position to bag more station contracts under the LRT3.

Source: Hong Leong Investment Bank Research - 7 Sep 2015