Construction Sector : Singapore-Malaysia HSR kicks off with MoU OVERWEIGHT

SECTOR FOCUS OF THE DAY

Construction Sector : Singapore-Malaysia HSR kicks off with MoU             OVERWEIGHT

The Memorandum of Understanding (MoU) for the Kuala Lumpur-Singapore High Speed Rail (HSR) project was signed yesterday. An international tender will be called to appoint an assets company (Assets Co), which will provide and maintain the HSR trains and its associated systems (e.g. track, power, signalling, and telecommunications). The HSR line will have eight stops with terminuses located in Bandar Malaysia and Singapore. The stops in between are in Putrajaya, Seremban, Ayer Keroh, Muar, Batu Pahat, and Iskandar Puteri (previously Nusajaya).  The HSR is expected to commence operations in 2026. Recall that the HSR was first announced in Feb 2013. The proposed 350km line (335km in Malaysia, 15km in Singapore) will cut travel time between Singapore and KL to 90mins by train and was initially planned for completion in 2020.

Overall, we are positive on the project as it will provide jobs flow for local construction companies. While the value was not revealed during the ceremony, it was previously reported that the HSR project could cost RM60bil-RM65bil. Based on the high-speed rail project in Indonesia that is underway (USD5.5bil), we estimate the Malaysia-Singapore HSR could cost at least USD13.5bil (RM54bil) or ~USD40mil/km. In terms of funding and business model, little details were given except that both countries will fork out money. Details on that expected to emerge after the signing of the bilateral agreement with the parties inclined towards a “market-driven model”. While it is hard to ascertain specific local beneficiaries of the project at this juncture, we believe most of the established local players would likely participate in the civil works of the project. In particular we believe piling specialists (i.e. Econpile, Ikhmas Jaya, Pintaras Jaya) may be involved as strong piling and foundation could be crucial for HSR while Sunway Construction, WCT, and Gadang may be involved in earthworks. In any case, we believe these tenders will likely not come anytime soon as construction is expected to only begin in 2018. We maintain our OVERWEIGHT view on the construction sector as major infrastructure projects such as the HSR will ensure sustainable job flows for the companies.

Others :

Cocoaland Holdings : A tad more cautious             BUY

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