ECRL-linked stocks keep sliding after suspension

Construction index has fallen as much as 32.11% since the start of 2018 and 14.92% since May 14


Construction stocks, particularly companies that are involved in mega projects such as the East Coast Rail Link (ECRL), continue to take a hit following the government’s suspension of several projects last week.

Once a favoured sector due to the previous administration’s focus on infrastructure development, Malaysia’s construction index has fallen as much as 32.11% since the start of 2018 and 14.92% since May 14 — the day trading resumed after the 14th General Election, Bloomberg data showed.

The new government has been keeping its pledge to review all mega projects approved under the previous ruling coalition.

So far, projects which have come under scrutiny include the ECRL, the Kuala Lumpur-Singapore high-speed rail (HSR), the Trans-Sabah Gas Pipeline (TSGP), the Multi-Product Pipeline (MPP) and the Mass Rapid Transit Line 3.

Last week saw a flurry of news on the ECRL, chief among which was the Ministry of Finance’s (MoF) order to suspend all services and operation works on the ECRL, TSGP and MPP.

The ECRL is a rail link spanning 688.3km from Port Klang to Pengkalan Kubor, Kelantan. Its initial estimated cost was said to be around RM55 billion.

However, Finance Minister Lim Guan Eng revealed last week that the true cost of the project is expected to reach RM80.92 billion, including land acquisition costs and financing.

Lim said the rail project would not be economically and financially feasible unless its cost was brought down by the builder.

ECRL is owned by Malaysia Rail Link Sdn Bhd, a wholly-owned unit of MoF Inc, while its engineering, procurement, construction and commissioning contractor is China Communications Construction Ltd (CCCC).

George Kent (M) Bhd, earlier seen as a prime proxy for rail project rollouts, has plunged 57.97% since May 14, while Lafarge Malaysia Bhd, which in March won a RM270 million contract to supply cement to CCCC’s local unit for the ECRL project, saw its stocks falling by 22.75% since the same period.

Another major construction player, Gamuda Bhd, has slipped 17.81% since May 14.

On the flip side, T7 Global Bhd and Gabungan AQRS Bhd have risen 4.11% and 9.26% respectively. T7 Global last year inked a memorandum of understanding (MoU) with three private companies to partner for the ECRL, while Gabungan AQRS is a construction engineering firm that was said to be in the running for an ECRL contract.

Prime Minister Tun Dr Mahathir Mohamad confirmed in a press conference last Friday that he will be visiting China soon to discuss certain issues including the ECRL.

Former Finance Minister Tun Daim Zainuddin — who heads the Council of Eminent Persons — will also be in China soon, while current Finance Minister Lim Guan Eng is also expected to visit China later this month.

In a recent research note, Hong Leong Investment Bank Bhd said it expects short-term volatility to continue in the local market due to global trade tensions, as well as domestic reform post-election that could take time to materialise.

Foreign selling has been increasing on Bursa Malaysia, it said, attributed to the new government’s surprise victory, a slowdown in the construction industry as mega projects are reviewed, national debt levels, negative news on 1Malaysia Development Bhd and lower revenue after the Goods and Services Tax was zero-rated.