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Gamuda, IJM Corp, MRCB potential winners from ECRL, says CIMB Research

August 10, 2017 12:21 AM
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KUALA LUMPUR: CIMB Equities Research expects Gamuda, IJM Corp, MRCB, WCT Muhibbah Engineering and Lafarge to be among the potential companies which could benefit from the East Coast Rail Link (ECRL).

It said on Thursday that with the groundbreaking milestone reached the previous day and the project funding structure revealed, it expects the tender phase of ECRL to start in 2H17.

“We would also not discount the potential of earlier awards for selected packages. While we acknowledge that it would be too early to name the winners of ECRL, the 30% portion earmarked for local contractors translates to a combined value of RM16bil, which is still sizeable, and comprises several main components including 1) viaducts, 2) bridges, 3) stations, 4) tunnels, and 5) depots,” it said.

CIMB Research pointed out that based on the past track record for rail-related awards, its assessment of potential beneficiaries of ECRL includes 1) viaduct specialists, 2) civil works specialists for bridges, 3) contractors specialising in piling for rail, 4) station contractors, 4) cement players, and 5) steel companies.

Other non-rated players include Ann Joo (steel), Econpile and Pintaras Jaya (piling), HSS Engineers (design), AZRB (viaduct and stations) and Gadang (depot).

The research house noted that 85% of ECRL would be financed via a soft loan from Exim Bank of China with 3.25% interest and a seven-year moratorium. The balance 15% would be financed through a sukuk programme by local banks.

The repayment tenure is 20 years, with interest and principal repayments waived for the first seven years.

CIMB Research pointed out Prime Minister Datuk Seri Najib Tun Razak’s statement that at least 30% of the contract value will be awarded to Malaysian contractors. This, according to the PM, should address concerns that the ECRL would only benefit Chinese companies/contractors.

In terms of economic benefit, Najib said 80,000 jobs are expected to be created. Once completed, the economic multiplier effect from the rail system is expected to raise the East Coast states’ GDP by 1.5%, he added.

Under the agreement, China Communications Construction Company (CCCC) is the main contractor and it would undertake 70% of the total project.

Also at least 30% of the contract value will be awarded to Malaysian contractors.

In terms of economic benefit, 80,000 jobs are expected to be created. Once completed, the economic multiplier effect from the rail system is expected to raise the East Coast states’ GDP by 1.5%.

“ECRL’s ground breaking marks yet another big milestone for the construction sector’s rail theme in 2H17. We expect the tender phase to gain momentum over the coming months and reveal more colour on the tender structure.

"While other contractors stand to benefit as well, we believe Gamuda could emerge as the biggest player for ECRL. The group’s target of RM10bil contract wins remains unchanged. We maintain our Overweight sector rating. Downside risks include project delays and funding,” it said.

Source: thestar.com.my

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