ECRL shaping up to be big theme for 2017

Construction sector

Maintain overweight: According to a news report, Transport Minister Datuk Seri Liow Tiong Lai has cited a change in alignment, a longer tunnel link and a weak ringgit as the reasons for the cost of the East Coast Rail Link (ECRL) project jumping to RM55 billion from RM29 billion. “The consulting firm previously used a different alignment. Previously, the length was 545km; now it is 600km. The ringgit at that time traded at 3.20 against the US dollar; recently it stood at 4.2 to 4.5,” he said.

Regarding an earlier feasibility study conducted by consulting firm HSS Engineers, which showed that the ECRL’s cost should not be more than RM30 billion, he said the project will now feature a 50km tunnel link, compared with 30km previously, and there will be more viaducts as well. The Economic Planning Unit of the Prime Minister’s Department will explain the details when the alignment and cost are finalised.

A tunnel traversing the Titiwangsa range has been done before. If a tunnel component of the ECRL is indeed included in the final specifications, this would not be the first time that a tunnel is constructed through the rugged Titiwangsa mountainous range. A 45km tunnelling project (with no rail components) was completed in 2014, though this was for the purpose of transferring raw water from Pahang to Selangor. The RM1.3 billion water transfer tunnel contract was awarded in 2009 to the Shimizu-Nishimatsu-IJM-UEM consortium (30:30:20:20).

Press reports have previously indicated that the recent ECRL memorandum of understanding does not exclude potential partnerships with, or the participation of, local contractors. Though there have yet been more leads on this, we believe rail contractors like Gamuda, IJM Corp and WCT are among potential larger-cap beneficiaries, especially if the ECRL’s alignment includes viaduct portions, similar to the mass rapid transit (MRT) project. We expect tender details in the first half of 2017 as selected phases of the ECRL are targeted to commence next year.

We reiterate that the rail is shaping up to be a big theme for 2017. Gamuda remains our big-cap top pick due to its biggest exposure to MRT 1, MRT 2, potentially MRT 3 and the Gemas-Johor Baru double tracking. The ECRL could be a sizeable opportunity. — CIMB Investment Bank, Nov 16

This article first appeared in The Edge Financial Daily, on Nov 17, 2016. Subscribe to The Edge Financial Daily here.