News

• Signing the dotted line. Yesterday, Malaysia and Singapore signed a Memorandum of Understanding (MoU) for the High Speed Rail (HSR) that would link both countries. The signing ceremony was witnessed by the Prime Ministers of both nations.

• More details revealed. The HSR will span 350km, 335km of which will be in Malaysia and 15km in Singapore, with 2 tracks in opposite directions. There will be a total of 8 stops at Singapore, Iskandar Puteri, Batu Pahat, Muar, Ayer Keroh, Seremban, Putrajaya and KL. Both countries have agreed to construct and maintain the HSR within thei r own national boundaries. This will be implemented by MyHSR Corp for Malaysia and the Land Transport Authority for Singapore. Construction is expected to start in 2018 and scheduled for completion by 2026. An international tender for the HSR is targeted to be called in August this year.

• Speeding up travel time. Existing train travel between KL and Singapore currently takes up to 11 hours. This will be significantly reduced to just 90 minutes via the HSR which is able to reach a maximum speed of 300km/h. There are also plans to co-locate the customs, immigration and quarantine (CIQ) checkpoints of both nations at Singapore, Puteri Iskandar and KL to facilitate seamless travel.

Comments

• Another boost for contractors. While no contract value was mentioned, previous media reports have placed the price tag of the HSR at a mammoth RM60bn with international contractors from China, Korea and Japan all expressing their interest to bid. We expect the main contract for the HSR to be secured by international contractors as local-Malaysian players lack the expertise to undertake it. However, we do expect a reasonable degree of local participation via subcontracts.

• Enhancing land values. The HSR will undoubtedly enhance land values in the areas that it connects. We believe that with the HS R’s enhanced connectivity, this would enable people to live and commute to work in separate regions such as from Seremban to KL and Iskandar to Singapore. To illustrate, with the HSR, the travel time for the latter route would only take 10-15 minutes.

Stock Impact

• For the contractors… Most of the larger construction names such as Gamuda, IJM, WCT and MMC have all previously expressed interest to participate in the HSR. However, at this juncture, it is still rather vague to pinpoint the exact scope and magnitude of their participation.

• For the property developers... It is easier to identi fy the beneficiaries amongst property developers based on thei r respective landbanks. Matrix has a remaining 1,200 acres of landbank in Seremban where it is undertaking thei r flagship Bandar Sri Sendayan township (GDV: RM5bn). Over in Iskandar Puteri (Nusajaya), UEM Sunrise is the largest land owner with 4,800 acres (GDV: RM51bn) while Sunway also owns 1,770 acres via its Sunway Iskandar township (GDV:RM30bn).

Source: Hong Leong Investment Bank Research - 20 Jul 2016