CHINESE COMPANIES WON’T BE SOLE BENEFICIARIES OF RAIL PROJECT, SAYS PM
CIMB Equities Research (CIMB Research) anticipates that Gamuda, IJM Corp and MRCB could emerge big winners from the upcoming East Coast Rail Link (ECRL) project. Also standing to gain, it says, are WCT Muhibbah Engineering and Lafarge, which would benefit from the immense construction work planned.
Having achieved a groundbreaking milestone earlier this month, CIMB ER said the funding structure of the ECRL has already been determined and it expects the tender phase of the project to begin in the second half of 2017.
“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 in a statement.
CIMB Research pointed out that based on the past track record for rail-related awards, the potential beneficiaries of the ECRL will include: viaduct specialists; civil works specialists for bridges; contractors specialising in piling for rail; station contractors; cement players; and steel companies.
The research firm also said that 85% of ECRL would be financed via a soft loan from Exim Bank of China, on a basis of 3.25% interest and over a seven-year moratorium. The balance 15% is likely to be financed via a sukuk programme by local banks.
The repayment tenure is said to be 20 years. Interest and principal repayments will likely be waived for the first seven years.
In addressing concerns that the ECRL would only benefit Chinese companies and contractors, CIMB Research referred to Prime Minister Datuk Seri Najib Tun Razak’s recent statements about 30% of the contract value being awarded to local players.
In the same statement, Najib said 80,000 jobs are expected to be created. When completed, the economic multiplier effect from the ECRL is expected to boost the GDP of east coast states by 1.5%.
The agreement struck with China Communications Construction Company (CCCC), which has been named the main contractor, it will only undertake 70% of the total project.
CIMB Research believes the ECRL will be a significant contributor to the construction sector and its activities in the short term future.
“We expect the tender phase to gain momentum over the coming months and reveal more colour on the tender structure,” it said.
“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 added.