• HSR RFI briefing. We attended the Kuala Lumpur - Singapore High Speed Rail (HSR) request for information (RFI) briefing held by MyHSR Corporation and came away feeling upbeat on the project’s prospects. Attendance was full to the brim, with representatives from companies such as MMC Engineering - the engineering arm of MMC Corp (MMC MK NR) - Berjaya Rail (Berjaya Land’s (BL MK, NR) rail unit), HSS Engineers (HSS MK, NR) and foreign industry players. Our Top Picks for the sector are Gamuda, Kerjaya Prospek, and Sunway Construction.

• The RFI aims to solicit concept proposals from local and international companies, to assess their readiness and capabilities for the HSR project. Some of the minimum selection criteria mentioned for the HSR project include having experience in on-going or completed construction of any railway project and design/installation of rail systems of a high speed rail project. Meanwhile, components to be covered under the concept proposal for the HSR cover five areas: vision and strategy, technicality, cost of project, commercial viability, and consortium structure.

• Key elements of the HSR include the design speed which should be 350km/h or any speed that complies with the International Union of Railways definition of a high speed rail (commercial speed of 250km/h), and the concessional structure, which is a design-finance-build-operate-transfer structure. While the concept proposal exercise is to be developed without any government guarantee, participants have the leeway to propose and justify any financial support from the Government.

• The HSR concept proposal exercise was divided into two steps: i) step one, the concept proposal starting from 11 August - which is the date of the RFI document distribution - until 15 November - which is date for the submission of concept proposal - and ii) step two, a detailed proposal. The first step essentially evaluates the capabilities and funding structures proposed by participants, which may take around six months.

• The shortlisted consortiums would proceed to step two and conduct a feasibility study to be incorporated into the final proposal – likely to take six to 12 months, in our view. Subsequently, the preferred bidders will be selected via an evaluation which could take at least six months, which would be followed by a contract negotiation before an actual rollout. Taking these steps into account, it may take 1.5 to 2 years from now before any major contract is rolled out. Some of the general evaluation parameters for both steps include the ability to establish and effective governance, and conflict management solution, with the capability to localise the local rail ecosystem considered an added advantage.

• Maintain OVERWEIGHT. We are positive on the Government’s move to open the RFI exercise to a wider pool of contractors. Top Picks include Gamuda and Sunway Construction - premised on their rail credentials which could likely see them participate in this RFI exercise - and Kerjaya Prospek which is also favoured for its steady job replenishment trend. A key downside risk includes longer-than-expected delays in contract rollouts.

Source: RHB Research - 28 Jul 2023