Nod for MRT Line 2 likely by Q1 2014

Posted on 19 December 2013 - The Sun Daily

PETALING JAYA (Dec 19, 2013): Approval for the RM25 billion Mass Rapid Transit (MRT) Line 2 project as well as the appointment of MMC Corp Bhd-Gamuda joint venture (JV), as the project delivery partner (PDP), is expected to be out by the first quarter of 2014.

Gamuda Bhd told RHB Research Institute that physical work for the MRT Line 2 or Sungai Buloh-Serdang-Putrajaya Line, could start in early 2016.

The government was initially expected to give approval for the MRT Line 2 before the end of this year.

"Gamuda believes that given the scale of the project, it is natural that the project will have to "go through the procedure" encompassing studies, bureaucracy, arguments and justification," the research firm said.

Analyst Joshua Ng said assuming that it takes about two years for the completion of land acquisition, public feedback, design and tendering as was in the case of Line 1, physical works for Line 2 should start around early 2016.

"This means there will not be discontinuity where construction equipment is laid idle and staff are redeployed to other projects. Gamuda believes the government is mindful of the situation," he said.

RHB Research said as at end of the first quarter for the financial year ending July 31 2014, financial completion (i.e. works certified done and billed) of the elevated portion (for which MMC-Gamuda earns a project delivery partner (PDP) fee of about 6% of the estimated RM14 billion of the elevated portion contract) stood at 17% (vis-à-vis 12% three months ago).

The RM8.3 billion tunneling portion (for which it assumes MMC-Gamuda JV earns a construction margin of 12%) is at 24% (vis-à-vis 18% three months ago).

At present, all 10 tunnel boring machines worth about RM1 billion have been delivered to the sites, with seven operational while the remaining three are being assembled, he said.

"With Line 1 worth RM23 billion currently under construction and Lines 2 and Line 3 worth RM25 billion each under planning, this mammoth mega project will keep players busy until 2019," Ng said.

However the KVMRT project is the sector's lifeline over the medium term.

"As such, it is extremely crucial that the government does not backpedal on its commitment to its implementation, and equally important, the timeliness of project execution," Ng said.

RHB Research said it liked Gamuda as it is the best proxy to public infrastructure spending in Malaysia given its dominant role in Line 1 of the KVMRT project, and most likely, in Lines 2 and Line 3 as well.

It also pointed out that Gamuda has secured the best parts of Line 1 of the KVMRT as a PDP with a 6% fee and a contractor for the high-margin tunneling jobs, and was likely to take the lead in terms of reacting to new sector price catalysts for instance, cabinet approval for the Line 2 of the Klang Valley project, given its large market capitalisation, high beta and share liquidity.

Propelled largely by the RM73 billion Klang Valley MRT project, which consists of three lines, RHB Research maintained its "buy" call on Gamuda. It has kept Gamuda's fair value unchanged at RM5.45..