Covid-19 could delay awards of mega projects

Some of the notable projects that are likely to face further postponement include MRT3 and KL-SG HSR


CASHFLOW pressure and slow progress in billing are expected to escalate earning risks for the construction sector as the Movement Control Order causes more delays on project execution, analysts claimed.

Bank Negara Malaysia, last week, stated that the continuation of RM15 billion worth of large-scale infrastructure projects will provide a lift to business activity amid the challenging economic conditions.

In a press conference last Friday, the central bank estimated capital spending on major transport infrastructure projects of about RM15 billion to lift 2020 GDP by one percentage point.

However, some of the notable projects that are likely to face further postponement are Mass Rapid Transit Line 3 (MRT3), Kuala Lumpur- Singapore High-Speed Rail (KL-SG HSR) and Rapid Transit System (RTS) as governments concentrate resources on tackling Covid-19.

“We reckon the deadlines could yet be further extended. Under the previous government, HSR was likely to get the go-ahead post-fat trimming. Meanwhile, RTS was given the green light to proceed in Budget 2020, pending the finalisation of terms,” said Hong Leong Investment Bank Bhd (HLIB).

Although Prime Minister Tan Sri Muhyiddin Yassin said the government will continue the implementation of all projects allocated in Budget 2020 including MRT2, East Coast Rail Link (ECRL) and the National Fiberisation and Connectivity Plan, analysts believe it may put strain on government financials as resources are diverted to stimulus packages to boost consumption and keep people in employment.

“We believe the government may face budget constraints due to weak income tax and oil-related revenue and hence, the revival of large-scale infrastructure, such as Klang Valley MRT3, will likely be delayed to 2021. “We are cautious on the construction sector’s outlook and have an ‘Underweight’ call on the sector,” Affin Hwang Investment Bank Bhd senior associate director of research Loong Chee Wei stated in an email yesterday.

The most mega project awards for first quarter of 2020 (1Q20) that did not meet market expectations were the Pan-Borneo Highway portion in Sabah, package B of ECRL and signing of the project delivery partner agreement for Penang Transport Master Plan (PTMP).

Political changes at the top have also hampered progress and disrupted financing for construction projects.

“Tender progress for ECRL might have stumbled as land acquisition has not been up to speed. We gather there is some progress as issuance of a sukuk facility to finance the ECRL is in the works (in addition to Export-Import Bank of China’s loan).

“Without meaningful progress in firming up a funding structure for reclamation works, other parts of the PTMP may not move,” said HLIB.

In 1Q, RM2.9 billion worth of contracts were awarded to listed contractors.

Some of the sizeable contract wins include the Pavilion Damansara Heights Phase 2 project (RM1.2 billion) to WCT Holdings Bhd, Aspen Vision City in Penang (RM617 million) to Kerjaya Prospek Group Bhd and TRX Residences (RM530 million) to IJM Corp Bhd.

“1Q exhibited sequential growth on the back of sizeable building jobs anchored by the award of Pavilion Damansara Heights Phase 2 project to WCT,” the firm said.

On a year-on-year basis, the value of contract awards in the quarter contracted by 40%, with infrastructure and building jobs declined by 63% and 27% respectively.

The decline was due to high base effect as 1Q19 saw strong contract flows buoyed by infrastructure awards for the Sungai Besi-Ulu Kelang Elevated Expressway and Gemas-Johor Baru double-track projects, as well as various apartment building jobs.

Foreign contract awards in 1Q increased to RM2.9 billion from 4Q19 of RM127 million, driven by various commercial project awards in India and the Middle East (RM1.1 billion) awarded to Eversendai Corp Bhd, a seawall construction in Taiwan (RM933 million) to Gamuda Bhd and a tolled highway project in India (RM500m) to Sunway Construction Group Bhd.

“Post-14th General Election, domestic contractors shifted focus overseas as domestic opportunities dried up. We think delays in award conversion led to rather lumpy awards materialising this quarter.