According to various reports, MRT3 was green lighted by cabinet to update studies conducted previously including alignment and costs which will take three months. We believe the development augurs well for the sector since the actual rollout could come in early 2022. Maintain NEUTRAL. The rollout of MRT3 would serve as an upside catalyst for the sector. While we are positive on the newsflow, we reckon uncertainties regarding timeline as well as hurdles on various fronts (political, funding etc) remain our key concerns. As such we for the time being, we maintain our NEUTRAL stance. Top picks include IJM (BUY; TP:RM1.95) and SunCon (BUY; TP:RM2.01).

NEWSBREAK

MRT3 to start. According to various news reports, MOT Minister Wee Ka Siong mentioned that in a recent cabinet meeting the MRT3 was given the green light to proceed with updating studies conducted previously on the implementation of the project. The update exercise will be given three months presented to cabinet including the finalised cost and alignment of the project.

HLIB’s VIEW

Positive progress. We believe the development augurs well for the sector since the actual rollout could come in early 2022. We estimate the project costs should fall in the range of RM20-22bn with 1/3 of alignment underground. Based on our understanding, several key issues including funding remains unresolved. Additionally, we note during that 2H21 might see an end to the current state of emergency which could spell further fluidity on the political front. We view this as key risks towards project implementation.

Broad base beneficiaries. The project would broadly benefit listed contractors given its complexity and scale. While its still early to pinpoint beneficiaries, we reckon past PDP winner of MRT1-2 lines are top contenders for the lead contractor job. Engineering consultants like HSS should also stand as early beneficiaries considering experience with previous MRT lines. Other contractors under our coverage which would bid for a slice of the pie include IJM, SunCon, WCT, MRCB as well as Kimlun (materials).

Maintain NEUTRAL. The rollout of MRT3 would serve as an upside catalyst for the sector. While we are positive on the newsflow, we reckon uncertainties regarding the projects timeline as well as hurdles on various fronts (political, funding etc) remain our key concerns. As such we for the time being, we maintain our NEUTRAL stance.

Top Picks. IJM (BUY, TP: RM1.95) is our top pick in the large cap space as a potential beneficiary of government’s infrastructure pump-priming spurred by its breadth of rail related construction experience. Against this backdrop, the company trades at an attractive P/BV of 0.63x. Within the mid-small cap space, we continue to like SunCon (BUY, TP: RM2.01) due to (i) strong balance sheet; (ii) extensive track record of infrastructure projects and (iii) strong support from parent-co.

Source: Hong Leong Investment Bank Research - 5 Apr 2021