Construction counters to get a boost from MRT3 resumption


THE construction counters on the local bourse are likely to get a strong push from the resumption of the Mass Rapid Transit Line 3 (MRT3) project as announced over the weekend, said analysts.

AmInvestment Bank Bhd (AmInvest) is upgrading its weighing for the construction sector to ‘Neutral’ from ‘Underweight’ following the news reports on the government’s decision to go ahead with the rail project which was suspended by the previous government.

“The implementing agency, Mass Rapid Transit Corp Sdn Bhd (MRT Corp), has been given three months to update the studies on the project, including its cost, and the construction will begin later this year.

“Given a newsflow-driven, liquidity-fuelled and risk-on stock market, we believe investors are likely to react positively to the minister’s statement,” AmInvest noted in a report yesterday.

Transport Minister Datuk Seri Dr Wee Ka Siong told reporters on Saturday that the rail project is expected to begin in the second half of 2021 (2H21) and the cost of the project will be determined by the studies conducted by MRT Corp.

Public Investment Bank Bhd (PublicInvest) added that the government will likely appoint a project delivery partner (PDP), or a turnkey contract model to develop the rail line.

“Reverting to the PDP model is unlikely, in our view, given constraints on the government’s funding as the PDP’s fees will result in additional costs.

“Though the PDP model is being explored to minimise execution risks, we think this could potentially be offset by the experience of contractors with good track records previously involved in the MRT1 and MRT2 projects,” the research house said.

PublicInvest believes the project will put the MMC Corp Bhd-Gamuda Bhd partnership in the limelight as the main proxy for the MRT project, having been the PDP for MRT1 and turnkey contractor for MRT2.

“MMC-Gamuda is also a strong contender for the underground portion given its expertise. Other contractors may include experienced contractors previously involved in MRT1 and MRT2 namely IJM Corp Bhd, Sunway Construction Group Bhd, TRC Synergy Bhd, Gadang Holdings Bhd and Muhibbah Engineering (M) Bhd, being the beneficiaries of the above-ground portion,” it said.

With the rollout of the MRT3 project to be the upside catalyst for the construction sector, Hong Leong Investment Bank Bhd (HLIB) estimated the project will cost between RM20 billion and RM22 billion with one-third of the alignment to be underground.

The research house maintained its ‘Neutral’ recommendation for the sector with IJM Corp its top pick with a target price of RM1.95.

Looking at the opposite aspects, AmInvest and HLIB mentioned political uncertainties to pose downside risk moving into the 2H21.

“Despite the positive sentiment, we have some reservations with the likelihood of the 15th General Election to be called immediately after the lifting of the nationwide state of emergency on Aug 1, 2021,” said AmInvest.

“We note that 2H21 might see an end to the current state of emergency, which could spell further fluidity on the political front. We view this as key risks towards project implementation,” added HLIB.