Two major packages for the KL-Singapore High Speed Rail (HSR) project are expected to be awarded in 2018. The project delivery partner (PDP) for the Malaysian portion of the HSR is expected to be appointed by end-1Q18 while the AssetsCo contract award is expected by end-2018. We believe the Gamuda-MRCB joint venture (JV) has a good chance of winning the bid for the PDP role. HSS Eng could win detailed design contracts for the HSR project. We remain Overweight the construction sector. Gamuda and HSS are among our top sector BUYs as potential winners for the HSR project.

HSR Tenders Underway

The tender for the PDP to undertake the Malaysian portion of the HSR infrastructure construction works was called on 22 November 2017. The tender will close on 30 January 2018. The tender for the Assets Company (AssetsCo) Public-Private Partnership Project was jointly launched by MyHSR and SG HSR on 20 December 2017 and will be closed on 29 June 2018. We expect the potential news flow on contract awards for the RM60bn HSR project will be a major upward re-rating catalyst for the Malaysian Construction sector.

Gamuda-MRCB Has a Good Chance for PDP Role

The PDP tender is expected to see stiff competition since it is open to both foreign and local consortiums with HSR experience and have undertaken major railway projects in Malaysia. Gamuda-MRCB JV and IJM CorpSunway Construction-Jalinan Rejang-Maltimur Resources JV are among the strong contenders for the PDP role. We believe a local consortium has a better chance than a foreign consortium to bid for the PDP role given that local knowledge is required to assist the government in land acquisitions and seek the requisite licenses and government approvals for the infrastructure works across several states in Malaysia. We believe the Gamuda-MRCB JV is in a strong position to win the PDP tender given Gamuda’s extensive experience in PDP projects (completed MRT Line 1 and undertaking MRT Line 2) and undertaking railway projects (completed Ipoh-Padang Besar Double Tracking). We believe MRCB has the political links, experience in developing railway transportation hubs and the backing of major shareholder The Employees Provident Fund.

Uncertainty on Potential Winners for AssetsCo Bid

We believe the potential listed Malaysian corporate winners for the AssetsCo bid is less clear. According to the tender documents, the AssetsCo is responsible for designing, financing, building and maintaining the rolling stock and rail assets, including track work, power, signalling and telecommunications. Malaysian companies have limited experience in HSR and the financing requirement is likely too high with the estimated cost at RM15-20bn. Hence, they will have to team up with foreign companies to bid for the AssetsCo role. We gather that MMC Corp with Japanese partner(s), George Kent partnering with Siemens and YTL Corp with Chinese partner(s) are interested to bid for the AssetsCo role. There is no requirement for the AssetsCo to have a Malaysian or Singaporean partner. It was reported that a Chinese consortium led by China Railway Corp will bid for the AssetsCo role for the HSR. Hence, it is uncertain if there will be any Malaysian beneficiaries for the AssetsCo bid.

Source: Affin Hwang Research - 8 Jan 2018