MRCB-Gamuda has been selected as HSR PDP for the northern portion and YTL-THP for the southern stretch. We expect work packages to be awarded towards end-2018 / early-2019. The infra works (Malaysia stretch) is estimated at RM40bn, roughly split equally between both stretches. PDP fee for MRCB Gamuda is said to be 5% which we have not imputed into our forecast. We have BUY ratings on both Gamuda (TP: RM5.98) and MRCB (TP: RM1.31). On the AssetsCo tender which closes in June, we feel that the GKent (TP: RM5.66) consortium is a top contender. Maintain OW on construction as the rollout of mega rail projects (HSR, MRT3, ECRL) are gaining pace.

NEWSBREAK

PDP for HSR selected. MyHSR announced that it has selected 2 consortiums for the KL-Singapore High Speed Rail (HSR) PDP role. MRCB-Gamuda JV will undertake the northern portion while the southern stretch will be by YTL-TH Properties JV.

HLIB’s VIEW

Project background. For the uninitiated, the HSR will span 350km from Singapore to KL with 8 stations at Jurong East, Iskandar Puteri, Batu Pahat, Muar, Ayer Keroh, Seremban, Putrajaya and Bandar Malaysia. Along with 3 CIQ facilities, door-to-door travel time between the 2 nations will take 90 minutes. We gather that the southern stretch will be in Johor while the northern stretch covers Melaka, Negeri Sembilan and Klang Valley.

Design followed by work packages. With the PDP roles awarded, the next milestone to watch out for is the award of the work packages. We expect this to happen sometime in end-2018 / early-2019 as the PDPs would first have to finalise the project’s design with MyHSR. From our understanding, the infra works for the Malaysia stretch amounts to RM40bn which would roughly be split equally between the northern and southern sections. While it is still too early to try and pin point the potential work package winners, we expect the usual active construction players such as IJM, SunCon, WCT, TRC, Ahmad Zaki, Mudajaya and Gadang to actively bid for a slice of the pie.

AssetsCo role next. The next major award for the HSR would be the AssetsCo role (i.e. systems work and rolling stock). Tender for this role was called in Dec 2017 and will close on 29 June 2018. For this, we reckon that the JV between GKent and several European firms (Siemans, Alstom, Italian Railways and PORR) could be one of the top contenders.

Stock impact. We gather that the PDP fee for the MRCB-Gamuda JV is 5%. This has yet to be reflected into our earnings forecast for both. In our view, the JV is well equipped to undertake the job given Gamuda’s vast rail track record and MRCB’s expertise in Transit Oriented Developments (TOD). Furthermore, both parties already have PDP experiences (MRT1&2 for Gamuda and LRT3 for MRCB). As both Gamuda and MRCB are the only PDPs for the northern portion, they will be eligible to bid for work packages in the southern stretch. We have BUY ratings on both Gamuda (TP: RM5.98) and MRCB (TP: RM1.31).

Maintain OVERWEIGHT. The HSR PDP award supports our thesis that contract award momentum is set to pick up significantly. Apart from HSR, other mega projects such as the MRT3 (RM45bn), ECRL (RM55bn) and Pan Borneo Sabah (RM13bn) should send job flows to a new high this year.

Source: Hong Leong Investment Bank Research - 6 Apr 2018