Penang LRT a boon for construction sector: MIDF Research

Publish date: Mon, 01 Apr 2024, 12:47 PM

KUALA LUMPUR: The rollout of the Penang Light Rail Transit (LRT) is a boon for the construction sector as the jobs pipeline is expected to remain strong, from both the civil and private sectors, said MIDF Research.

The research firm maintained its "positive" call on the sector with the expectation that the project would cement the earnings quality for construction players over the next few years.

The mega rail project would be divided into three contracts, namely Civil construction for Silicon Island to Komtar alignment (Segment 1), Civil construction for Komtar to Penang Sentral alignment (Segment 2) and Turnkey systems and rolling stocks.

The government has offered the Civil construction for Silicon Island to Komtar alignment (Segment 1) job via a single source request for proposal (RFP) to SRS Consortium Sdn Bhd, a 60 per cent Gamuda Bhd subsidiary.

SRS Consortium has six months to finalise the negotiations of the contract value and detailed information with the Finance Ministry-owned Mass Rapid Transit Corporation Sdn Bhd (MRT Corp).

"Apart from Gamuda, we expect other players to also benefit from the sizeable Segment 2 package and contractors that may be awarded second-tier jobs.

"Cement producers such as Malayan Cement Bhd and steel players are also among beneficiaries, the latter for steel bars, rail and noise barrier requirements," it said in a note today.

The second and third contracts will be opened for tenders.

Meanwhile, HongLeong Investment Bank (HLIB) Research said the possibility remains that Gamuda may participate in Segment 2, as well as the Turnkey systems and rolling stocks open tenders.

"We estimate that Segment 1 civil works may fetch contract values of RM10 billion carrying an effective value to Gamuda of RM6 billion.

"This could take unbilled construction order book to a mammoth RM30.1 billion once awarded. Assuming the letter of agreement comes by July 2024, Gamuda may end financial year 2024 (FY2024) with RM15.7 billion of contract wins," it said.

As such, HLIB Research maintained its "buy" rating on Gamuda with a higher target price (TP) of RM6.11 after adjusting for an earlier-than-expected project kick-off.

Meanwhile, HLIB Research said the potentially strong contenders for the Segment 2 package are Sunway Construction Group Bhd (buy; TP: RM3.20), IJM Corporation Bhd (buy; TP: RM2.38) and Malaysian Resources Corporation Bhd (buy; TP: RM0.70).

In addition, the research firm reckons that TRC Synergy Bhd, Gadang Holdings Bhd, Kimlun Corporation Bhd, Gabungan AQRS Bhd, Econpile Holdings Bhd, Aneka Jaringan Holdings Bhd and Eita Resources Bhd could also bid for subcontracts for Segment 1 and Segment 2.


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