The MRT3 Circle Line Project is a mega infrastructure project planned to execute as earlier as 2017 and the MRT Corp once open for the tender process as earlier as November 2017, but the political party rotation after the Pakatan Harapan won the regime of Malaysia, changes everything. The new government led by the Pakatan Harapan has set a pause on the MRT3 project until it is presented in the Budget 2021 by another government regime, Perikatan Nasional. In the midst, multiple governments have intended to rewrite the proposal by cutting stations and routes in an attempt to lower the costs. And finally, after all the ups and downs, the final proposal of MRT3 has been confirmed and proceeded to open the tender process in May 2022.
The article will discuss the five main packages presented in the MRT3’s open tenders process, inducing three Civil Main Contractors (CMC) packages, one Project Management Consultancy (PMC) package, and one Systems Turnkey Contractor (STC) package. Apart from that, this article also touches on the potential winning tender from publicly listed companies in Bursa Malaysia.
(As a disclaimer, this article serves the purpose of education and is not responsible for any financial or investment advice.)
The Civil Main Contractors (CMC) Packages of MRT3 are the government contracts outsourced to the contractors to design and construct the MRT3 stations and routes comprised of elevated and underground stations and routes. The CMCs packages of MRT3 are currently in the open tender process and the result of the tender awards is projected to be published by Q4 2022. Below are the details of the CMCs packages.
MIDF Research estimated the project value of CMC301 at RM2.79B, the contractors are responsible for the design, construction and completion of the viaduct guideway, elevated stations, depot and other associated works from Station 20 Pandan Idah to Station 22 Jalan Cheras.
MIDF Research estimated the project value of CMC302 at RM13.94B, the contractors are responsible for the design, construction and completion of the viaduct guideway, tunnels, stations, depot, ancillary structures and other associated works from 1) Station 22 Jalan Cheras to Station 30 Pantai Dalam, and 2) Jalan Station 8 Kuching to Station 20 Pandan Indah.
MIDF Research estimated the project value of CMC303 at RM14.29B, the contractors are responsible for the design, construction and completion of the viaduct guideway, tunnels, stations, ancillary structures and other associated works from Station 30 Pantai Dalam to Station 8 Jalan Kuching.
Proven technical capabilities in the past 15 years including:
Proven technical capabilities in the past 15 years including:
Proven technical capabilities in the past 15 years including:
The Project Management Consultancy (PMC) Package of MRT3 is the government contracts outsourced to the contractors to guide the project to completion, help manage expenses, and ensure that other employees fulfil their duties and responsibilities. The PMC package of MRT3 completed its open tender process and the result of the tender award has announced on August 2022. Below are the details of the PMC packages.
Certificates Requirements: Tenders must possess the Registration with the Ministry of Finance (MOF) in any two (2) of the following codes (Applicable to Project Management Consultant or Independent Consulting Engineer)
Certificates Requirements: Alternatively, tenders should possess Construction Industry Development Board (CIDB) Grade G7 (Applicable to Project Delivery Partner) and Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia - SSM)
Tenders Track Records:
According to New Strait Times, MRT Corp announced the winning tender of Project Management Consultancy (PMC) of the MRT3 Circle Line Project through its press statement on August 4, 2022. The fierce tender bidding received a total of 5 bids from 5 JV/Consortium consisting of 13 companies, and the winner tender of the PMC for MRT3 Circle Line was awarded to HSS Engineers Bhd through its JV/Consortium named HSS Integrated-HSS Engineering JV. The total contract value of PMC in the MRT3 Circle Line Project is worth a whopping RM997.9m which occupied 2.9% of the MRT3’s budget in construction cost of 33.4b.
HSS Engineers Bhd and its subsidiaries are engaged in providing engineering and project management services including engineering design, project management, construction supervision and building information modelling services. The company has currently operated in Asia and the Middle East Market, including Malaysia, India, the Middle East and Brunei.
HSS Engineers Bhd has past experience in MRT2 and was appointed as the Independent Consultant Engineer (ICE) for the MRT 2 Putrajaya Line Project in 2015 with a revised contract value of RM159m. Hence, it's not surprising the HSS Engineer Bhd has won the PMC in the MRT3 open tenders. The analysts from CGS-CIMB estimated the RM998m MRT3 PMC award raises the group’s RM517m outstanding order book by 93% to its all-time high of RM1.5bn. Back-of-the-envelope estimates using an 8-year project schedule and 1QFY22’s 7% net profit margin point to RM8.7m net profit contribution p.a. (50-70% of FY22-24F EPS) from the PMC package.
The System Turnkey Contract of MRT3 is the contract outsourced to the contractors to plan, design and build a system of the project and do any other necessary development to make it functional or “ready to use” at an agreed price and by a determined date. The details of the STC package of MRT3 have not been announced yet, but MRT Corp is estimated to have a tenders briefing for the STC package in more detail on October 19, 2022.
Certificates Requirements: One of the tenders from JV/Consortium must possess valid Perakuan Pendaftaran Kontraktor ( PPK ) and Sijil Perolehan Kerja Kerajaan ( SPKK ) from CIDB and possess a valid Certificate with the Companies Commission of Malaysia Syarikat (Suruhanjaya Malaysia - SSM).
Certificates Requirements: Tenders must provide a Certified True Copy of the Company's Incorporation Certificate certified by a notary in the country of incorporation.
Shareholders Fund: Must not be less than RM150m (based on the latest financial year) Financial Strength: Cumulative EBITDA over the latest 5 preceding years must be positive
Tenders Qualification:
Tenders Track Records:
According to MIDF Research, the entire CMC301 contract is estimated to be worth up to RM2.79b, and the lucrative project is projected to have fierce tender competition from various companies, which Sunway Construction Group Bhd is one of the potential winners of the CMC301 package.
Solid Balance Sheet. SUNCON has a solid balance sheet and available cash reserve to pay 10% financing upfront for the CMC302, which required up to RM300m in the initial 2 years, and SUNCON has sufficient cash on hand up to RM670m which is enough to pay the financing upfront as referring to the quarterly report of June 2022. SUNCON also have a low gearing ratio (debt-to-equity) among its peers at 35.8% which indicates SUNCON still have room to raise more capital in securing the CMC301 package.
Relevant Experience. SUNCON was been the contractor for both MRT1 Kajang Line and MRT2 Putrajaya Line in constructing MRT stations and routes. SUNCON has been awarded the tender for the MRT Package V4 in MRT1 Kajang Line and has built 3 elevated stations and viaduct guideways from Phileo Damansara to Semantan Station (6.5km), the project totalling valued up to RM1.17b. Similarly, in MRT2 Putrajaya Line, SUNCON has been awarded the MRT V201 contract from Sungai Buloh to Persiaran Dagang, and SUNCON has successfully completed 3 elevated stations and viaduct guideways in spans 4.9km in length within the agreed timeline at 60 months and the value of the contract is worth up to RM1.21b. Hence, SUNCON's past track records show their capability in constructing the MRT stations and routes is undeniable and provided SUNCON with solid fundamentals in winning the CMC301 for MRT3 Circle Line.
The entire CMC302 contract is projected whopping up to RM13.94b according to MIDF Research, and the profitable contract is projected to have intense tender competition from various companies. One of the outstanding contester we can expect is IJM Corporation Berhad, which we believe IJM is one of the potential winners of the CMC302 package.
Strong Balance Sheet. IJM Corp has a strong balance sheet with available cash up to RM2.6b as stated in the quarter report ended June 2022, which is sufficient to pay the 10% upfront financing for CMC302 at RM1.39b for the first 2 years. The robust financial position and a low net gearing ratio of 27.0% makes IJM Corp able to raise more capital in securing the CMC302 package without affecting the company’s operation.
Aiming for MRT3 Project. IJM Corp has not secured anything major in the quarter ending June but with the group’s guidance for wins projects over RM3b. We can certainly expect IJM to participate in MRT3's CMC302 tender and aimed for the above-ground and short tunnelling package as the CMC302 is way more lucrative than CMC301.
Relevant Experience. IJM Corp is a veteran constructor who built totalling up to 165 km of railways including LRT, KTM, MRT and Monorail projects in Malaysia. In the past MRTs projects, IJM was one of the main contractors who possess solid track records in constructing totalling up to 8 MRT stations and 10km lengths of routes and the combination project value of both contracts worth up to RM2.4b. To date, IJM Corp has completed and delivered half of the V203 Package in MRT2 Project, starting from Station 7 Jinjang to Station 13 Kampung Batu, the rest of the stations are estimated to be delivered in January 2023. Besides, IJM was partnering in a Joint Venture with UEM Builders and Japanese companies Shimizu Corporation and Nishimatsu in 2010 to build the longest tunnelling in South-East Asia, the project was Pahang Selangor Raw Water Transfer Tunnel with 44.6km in length. Also, IJM Corp harnessed experience in building underground tunnelling in LRT3 Project, IJM has constructed twin-bored tunnels with a length of 2.1km and 6.35 metres in diameter. This proves that IJM possesses the expertise and technical capabilities in underground tunnelling projects, hence we believe IJM is able to handle the 1.2km underground routes in the CMC302 contract.
The MRT3's CMC303 contract is projected whopping up to RM14.29b as referred to MIDF Research, and it was the highest project value among other civil contracts. But the CMC303 is expected to have mild tender competition as the stringent requirements to take part in CMC303 have narrowed down the scope to a few companies. One of the consensuses we can agree on is Gamuda Berhad (KLSE: GAMUDA) which we believe is the convincing potential winner of the CMC303 package of its past track record in monopolizing the tunnelling works.
Strong Financial Position. Gamuda has a strong cash reserve of 3.1b cash as of the third quarter ending April 2022, which is sufficient to pay off the financing prerequisite of CMC303 at 1.43b in the initial 2 years of the project. We can see that Gamuda Bhd is in a strong financial position and has a low net gearing ratio of 11.0% in the latest quarter report, which gives it an advantage in acquiring extra funds to secure the CMC303 Package without negatively affecting the business operation.
Relevant Experience. We believe in Gamuda’s past track record in constructing rail and underground tunnelling expertise from MRT 1 and 2 as a powerful edge over other bidders for the MRT 3 underground package CMC303. Gamuda is the only tender that won the underground contract twice in both MRT1 and MRT2 due to its unique comparative advantage in tunnelling capabilities. Gamuda has built 7 underground stations from Station 13 Muzium Negara to Station 19 Maluri in MRT1 Project, valued at RM8.28 billion. Similarly, Gamuda also awarded the MRT2 underground packages at RM15.47b and built all underground stations and viaduct guideways from Station 15 Jalan Ipoh to Station 26 Bandar Malaysia South. With Gamuda’s expertise in underground work and tunnelling, it is foreseeable that the company could win the MRT3’s CMC303 underground contract as technical capability requirements have narrowed down the competition to just a few companies.
In short, the MRT3 open tenders are still ongoing and we do foresee numerous companies can be directly benefitted from the tenders awards and also much more indirect benefited companies as sub-contractors and stakeholders of the construction industry, not to mention the people in Kuala Lumpur are the largest beneficiary who are able to enjoy the conveniences of the MRT3 Circle Lines in future.
For the fierce competitive CMCs’ tender bidding, we have screened out some of the potential companies who were able to win the contracts. For CMC301, our top pick is SUNCON due to its solid balance sheet and relevant experience in the MRT1 and MRT2 projects. Plus, the SUNCON’s Managing Director has voiced out to keep their eyes on both CMC301 and CMC302, but our estimate to skewed toward CMC301. Next for CMC302, we expect the construction giant IJM will prioritize aiming for that as the contract is larger and worth over RM10b. We also see that IJM Corp has the financing and technical capabilities with vast experience in MRTs projects and underground tunnelling including the experience in constructing the record-breaking longest underground tunnelling Pahang Selangor Raw Water Transfer Tunnel. we believe IJM is set out to win this contract as the group shows no interest in bidding on any large contract in the first half of 2022. Lastly, for CMC303, we are highly confident to foresee Gamuda winning the contract with ease as the technical capabilities and experience in underground tunnelling will be considered thoroughly and Gamuda did hold the expertise in underground works in both MRT1 and MRT2, which makes it stand out in bidding the MRT3 underground package.
As for PMC, the open tender process has come to an end and we already saw that HSS Engineer Bhd has appeared to be the PMC for the MRT3 Project. It is not surprising as HSS Engineer Bhd have the experience of being the Independent Consultant Engineer (ICE) in the previous MRT 2 project. Lastly, the STC’s package has not been announced yet and we still waiting for the MRT Corp to release further information on the requirement of the tenders.
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