ECRL revival a boon to the economy and the construction sector

First 2 phases of the rail line are to proceed at RM44b, 32.8% lower than the initial RM66b estimate

By MARK RAO / Pic By MUHD AMIN NAHARUL

THE revival of the multibillion East Coast Rail Link (ECRL) is expected to spur greater economic activities in today’s laggard market, creating the much needed immediate and long-term benefits for Malaysia.

After lengthy discussions and much speculations, the first two phases of construction for the extensive rail line are to proceed at RM44 billion, 32.8% lower than the initial RM65.5 billion estimate.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the ECRL will boost market sentiments, especially in the context of a slowing global and domestic economies.

“The implementation of such a project will help to increase economic activities, particularly in the construction, manufacturing and services sectors in the immediate term.

“In the long run, the project will be a catalyst for economic development in the East Coast areas as there will be related infrastructure such as expressways, ports, utilities and paved roads,” he told The Malaysian Reserve.

He added that the ECRL will create demand for high-skilled workers, especially those engaged in rail-related industries, as maintenance works are required after the project is completed.

The ECRL was given the green light after project owner Malaysia Rail Link Sdn Bhd and contractor China Communications Construction Co Ltd signed a supplementary agreement last week.

This comes after months of deliberation between the two companies as well as between the Malaysian and Chinese governments.

Tun Daim Zainuddin, acting as the prime minister’s (PM) special envoy, was reported as saying that the rail line will be shortened by 40km to 648km, while cost per km is lower at RM68 million against the previous RM98 million.

He told reporters in China that the Gombak stop is eliminated from the ECRL route.

The train will instead run through Jelebu, Negri Sembilan, while the rail link will continue to stretch from Kelantan and Port Klang.

Construction Players Rejoice
The ECRL was among the first casualties of the government’s review of dubious projects undertaken by the former administration, much to the dismay of companies who were poised to benefit from the multibillion project.

It was thus unsurprising that news of the railway project being resumed sent shares of ECRL-linked stocks higher last week.

Shares in Pintaras Jaya Bhd, WCT Holdings Bhd and Gadang Holdings Bhd closed higher at RM2.35 (up 2.17%), 96 sen (up 2.13%) and 71 sen (up 0.71%) respectively, last Friday. All three are believed to have secured subcontracts for the ECRL.

Ahmad Zaki Resources Bhd and Ikhmas Jaya Group Bhd, reportedly brought on as subcontractors, also traded higher at 55 sen and 17 sen, up 1.85% and 3.03% respectively.

Diversified construction group Bina Puri Holdings Bhd, which has worked with China- based firms in the past, noted the sharpest increase of 16.22% or three sen to end the day at 21.5 sen.

A close second was Econpile Holdings Bhd whose shares closed 3.5 sen or 6.03% higher at 61.5 sen. The company reportedly secured piling works for the ECRL.

Shares in Lafarge Malaysia Bhd and YTL Corp Bhd, who were brought on for cement supply, also closed higher at RM2.48 (up 0.81%) and RM1.21 (up 1.68%) respectively. George Kent (M) Bhd, seen as a prime proxy for rail projects in Malaysia, also traded higher at RM1.32 (up three sen or 2.33%).

However, it was not all gains for ECRL-linked counters with Gamuda Bhd closing six sen or 1.85% lower at RM3.19 despite market peer MMC Corp Bhd rising four sen to RM1.08.

Sunway Construction Group Bhd (SunCon), Ekovest Bhd and IJM Corp Bhd also traded in the red last Friday.

SunCon posted the sharpest decline between the three despite reportedly being brought on as a subcontractor for the rail project; its shares fell 3.98% to close at RM1.93.

Similarly, perceived ECRL beneficiary Gabungan AQRS Bhd saw its shares losing 3.57% or five sen in value to end the week at RM1.35. The company previously tendered for RM2.5 billion of work on the Kuantan stretch of the rail link.

While the resurrection of the ECRL is a boon for the construction industry on a whole, certain companies will be favoured over others as cost competitiveness will be key going forward for the rail project.

Ancillary Benefits
China remains one of Malaysia’s largest trading partners and the ECRL revival could prove the olive branch that fosters greater trading ties between the two nations.

Relationships between the two countries became fraught after Malaysia axed billions worth of large-scale projects that were backed by investments from China.

The Malaysian government acted on the need to cut its losses as the costs for these projects escalated to the point where they were no longer profitable to be undertaken.

For China, the axed projects meant monetary losses even if compensation was to be paid.

The ECRL could prove the start of improving relations between the two countries.

Mohd Afzanizam said the multibillion rail project will encourage the use of Malaysian ports which, in turn, will facilitate international trade within China’s Belt and Road Initiatives (BRI).

PM Tun Dr Mahathir Moh amad repe at edly expressed his interest in the China-led trade projects and is scheduled to make a return trip to the country for the BR summit on April 24 this year.

Bilateral trade between Malaysia and China is strong with US$108.6 billion (RM443 billion) generated in 2018, up 13% from US$96 billion in the previous year, and the BRI should continue to support the trade ties this year.