The Project Delivery Partner (PDP) contract for the HSR Malaysian infrastructure works was split between the YTL Corp-TH Properties and MRCB-Gamuda consortia. We believe the Gamuda-George KentMMC Corp (GGM) consortium could also win part of the MRT3 project. We remain Overweight the Construction sector. We met up with Malaysia Rail Link (MRL) and gather that the Malaysian subcontracts for the ECRL project is expected to be rolled out in 2Q18. Gamuda, MRCB and HSS are our top sector BUYs.

Gamuda-George Kent-MMC Is Likely Winner of MRT3

According to The Edge, the GGM consortium and China Communications Construction Co. (CCCC) have been shortlisted for the Klang Valley Mass Rapid Transit Line 3 (MRT3) turnkey with financing contract and could share the civil works worth about RM45bn. We believe both consortiums have the technical capabilities to undertake the project. But awarding the contract to a local player such as GGM will ensure a higher economic impact with more local sourcing of materials and subcontract services.

PDP for HSR Malaysian Infrastructure Announced

MRCB-Gamuda (north section) and YTL-TH (south section) received Letters of Intent (LOI) from MyHSR Corp for the Kuala Lumpur-Singapore High Speed Rail (HSR) Malaysian infrastructure PDP contract estimated to be worth RM30-35bn. This will kick-start the implementation of the project once the PDP terms are finalised in 2Q18. Potential engineering consultant and contractor beneficiaries are HSS Eng, IJM Corp, Mudajaya, Suncon, WCT, Ahmad Zaki, Gadang, TRC Synergy and TSR Capital.

Likely Post-election Rally

The 14th general election (GE14) will be held on 9 May 2018. We believe the construction stocks will rally post-election assuming there is no change in government. GE14 uncertainties led to the pre-election correction in construction stock prices. Construction stocks rallied post-election in 4 out of 5 past GEs but declined in 2008 due to Global Financial Crisis (GFC) concerns and Barisan Nasional losing its 2/3 majority in Parliament.

Maintain Overweight

We believe potential news flow on contract awards for the MRT3, East Coast Rail Link (ECRL) and Pan Borneo Highway (PBH) Sabah projects will support the outperformance of the Construction sector in 2018 and we maintain our Overweight call. Our top BUYs are Gamuda (large cap), MRCB (mid cap) and HSS (small cap). Gamuda is also selected as one of Daiwa Global Strategist Paul Kitney’s top picks.

Source: Affin Hwang Research - 12 Apr 2018