ECRL subcontract works of up to RM11b likely only source of new jobs in Budget 2020: Analyst

KUALA LUMPUR (Oct 4): The East Coast Rail Link (ECRL) — which is anticipated to have a civil works subcontract value of RM9 billion to RM11 billion — is likely to be the only source of immediate new order book for contractors in the upcoming Budget 2020 despite timing risks for new contract awards, says CGS-CIMB Research.

Its analyst Sharizan Rosely wrote in a note this morning that the research house is cautiously optimistic that new tender packages of the ECRL project can get off the ground in the fourth quarter of 2019 (4Q19).

"This is after considering the extended time needed to resolve and approve the new alignment and land acquisition, in addition to the structuring of the first few subcontract packages available to be tendered. In all likelihood, we expect the ECRL to be an immediate source of job awards for contractors in 2020.

"Our earlier estimate of the value of ECRL civil works remains intact at between RM22 billion and RM26 billion, being 50-60% of the total project cost of RM44 billion. Based on the 40% portion of civil works for local contractors and after including the 50km spur lines, we arrive at an estimated range of RM9 billion to RM11 billion," he explained.

However, the research house does not rule out a possible delay in ECRL's 4Q19 initial tenders, which could make a comeback with RM3 billion to RM5 billion worth of initial subcontract works in the first half of next year.

Meanwhile, Sharizan highlighted there could be wildcards for the construction sector from the upcoming Budget 2020, although priorities are likely limited to public transport projects already approved, such as the ECRL, Light Rail Transit 3, and Mass Rapid Transit 2 (MRT2).

This includes the potential relaunch of Mass Rapid Transit 3 (MRT3), and the possibility of Bayan Lepas LRT being included as a federal funded contract, which would then revive the overall Penang infrastructure angle under Penang Transport Master Plan (PTMP).

As for the Kuala Lumpur-Singapore High Speed Rail, Sharizan said it is still too soon for a revival theme.

"Post-Budget 2020, we generally expect sector job award growth to come off a low base, driven mainly by the ECRL.

"Contract award momentum has been subdued year to date, with upside risks in contract rollout coming from the JB-Singapore Rapid Transit System [Link], Bayan Lepas LRT and Pan Island Link 1 (PIL 1) in the second half of 2020 (2H20).

He said IJM Corp Bhd remains one of the potential beneficiaries of ECRL's initial awards and potential contenders of selected new rail jobs should the government revive them in Budget 2020.

Malaysian Resources Corp Bhd (MRCB), meanwhile, is likely to target the affordable housing segment and may participate in the ECRL tenders, although recent checks indicate that the timing of the tenders is unlikely to be in the near future.

CGS-CIMB has a "Hold" call on these two stocks, with a target of RM2.29 for IJM and 78 sen for MRCB.

IJM shares were traded at RM2.15 apiece and MRCB at 70.5 sen as at 10.46am.

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