Yesterday (13 Nov), Macquarie Equities Research (MQ Research) released a report on the East Coast Railway Link (ECRL) following another round of awards in this project. MQ Research summarised the timeline and stages before a company potentially receives an award to secure the ECRL civil works packages.

Event

Following another round of awards in the East Coast Railway Link (ECRL) project, MQ Research tracks the progress and timeline of potential awards based on the packages available. For ECRL project, MQ Research’s top picks are Gabungan AQRS (AQRS MK, RM1.25, Outperform, TP: RM1.60) and Econpile Holdings (ECON MK, RM0.76, Outperform, TP: RM1.00).

Impact

Prior to civil works contract awards, MQ Research understands that every package will go through these stages: 1) Finalised alignment; 2) Preliminary design; 3) Final design; 4) Approval of final design by Land Public transport Agency (APAD); 5) Land acquisition by the government and approval by local municipalities; and 6) Civil works awards. Below are the status of each ECRL package:

• Package 1 – stage 2: Per the most recent announcement by HSS, the preliminary study for this package has been awarded and the study will be carried out between now and 3Q20. Given that the alignment has been finalised, federal government could initiate the land acquisition process and this could be the trickiest bit of all. Land acquisition is funded by the federal government and the onus of completing this task sits on the federal government, not the main contractor – China Communications Construction Company (CCCC).

• Package 2 – stage 5: This package is at the most advanced stage, primarily because it did not go through any alignment or design change after the change of government. MQ Research understands in November 2019, the land acquisition will be finalised and payments will be made to landowners by month-end. As such, it will be cleared for awards starting December 2019. The key job scope to look out for in this package would be the TOD Hub which will be built in Kota SAS, Pahang. MQ Research believes this job scope will be the most lucrative one within this package. Note that AQRS is already one of the main contractors of Kota SAS township project.

• Package 3 – not even at stage 1: The alignment of this package has yet to be finalised – although, MQ Research understands that there will be a tunnel to cut through Bukit Putus in Negeri Sembilan. This alignment will pass through Putrajaya before making its turn towards Port Klang.

Previously, MQ Research highlighted that local contractors may get up to RM7.3bn of civil work contracts for this project. MQ Research further understands that there could be an upside of up to RM5bn coming from subcontracting awards from the Chinese contractors. Local contractors are needed to bridge the communications between Chinese contractors and local municipalities and state governments. In turn, subcontracting works to local contractors could help the Chinese contractors in completing the ECRL project.

Outlook For this project, MQ Research’s top picks are AQRS and Econpile (AQRS’ long-term piling partner). Both have had working relationships with CCCC in previous projects such as Light Rail Transit Line 3 (LRT3) and Sungai Besi – Ulu Kelang Elevated Expressway (SUKE) – and with that MQ Research believes they could be among the favourites to secure ECRL’s civil works packages. AQRS management is confident that it could secure at least RM1.5bn from this project alone.

Source: Macquarie Research - 14 Nov 2019