• The Kuching Autonomous Rapid Transit (ART), part of the first phase of the Kuching Urban Transportation System (KUTS) plan (estimated at c.MYR6bn), is fully financed by the Sarawak Government. Phase 1 of KUTS involves a c.70km route comprising three lines and 31 stations with dedicated lanes. We believe that there are still opportunities from the project – particularly for the Blue Line package 2 and Green Line package which are yet to be awarded. Upcoming potential beneficiaries include Kimlun Corp (KICB MK, NR) and KKB Engineering (KKB MK, BUY, TP: MYR1.90).

• Progress of the Kuching ART. Two system packages for the Kuching ART were awarded in Jul 2022 and Nov 2022, and worth MYR1.9bn in total. Meanwhile, the job for the advanced works for the Rembus Depot was clinched by Hock Seng Lee, before the full works contract (valued at MYR260m) was awarded in Dec 2023 to a JV between IJM Construction (IJM Corp subsidiary), Azam Sehasrat and Unique Deco. The Rembus depot is being built on an 80-acre site, which will house facilities like a hydrogen production plant, stabling yard and operations control centre amongst others.

• Kuching ART has three lines (Blue, Red and Green Lines). The Blue Line package 1 was awarded in Nov 2023 to a JV consisting of Ibraco Construction (Ibraco’s (IBRA MK, NR) construction arm), China Railway Engineering Corp (M) and Nanyang Tunnel Engineering – at a value of MYR569m. Meanwhile, the Red Line package was secured by a JV between Sri Datai Construction (Sarawak), JV Builders and CHEC Construction – this job is worth MYR943.3m.

• Any more opportunities under Kuching ART? Our observation indicates that the Blue Line package 1 for Kuching ART could be c.20km – leaving package 2 (yet to be awarded) to be c.7km. Additionally, the Green Line (the longest line, at 30km) package is also not yet awarded to any party, and could likely be worth more than the contracts previously given.

• Investable ideas. KICB had previously expressed interest to participate in the Kuching ART project. Sarawak Metro highlighted that 20% of the 70km alignment of the Kuching ART will be elevated – which presents opportunities for the group to supply precast components such as segmental box girders, which KICB is known for. We also do not discount KKB’S participation in the Kuching ART project – particularly for fabricationrelated works for the hydrogen production plant at the Rembus depot. KKB is backed by Sarawak Economic Development Corporation’s (SEDC) 10.7% stake in KKB. Sarawak Metro – the project owner of Kuching ART – is a wholly-owned subsidiary of SEDC.

• Overall view. The progress of the KUTS project (backed by MYR900m set aside under Sarawak’s alternative funding for 2024) signifies Sarawak’s continued drive to boost its infrastructure. Also, developments like highways, buildings and industrial plants are supported by the state’s record-high MYR9bn development expenditure for 2024, potentially benefitting contractors. Key downside risks: Delays in the implementation of infrastructure projects in the state and unforeseeable cost cuts.

Source: RHB Securities Research - 9 Jan 2024