CIMB research underweighting rail sector after LRT3 on a smaller scale – Business News

KUALA LUMPUR: The decision of the Ministry of Finance (MoF) to reduce the LRT 3 project (Bandar Utama-Klang) is a short-term stay for the entrepreneurs involved, but it remains negative.

the potential contract value and margins in effect for all WPCs resulting from scaling down could be lower for both the Joint Venture Project Partners (PDP) and the Contractors.

We remain negative on the overall rail outlook at 2:18 and remain underweight in the sector, "the report added.

On Thursday, the Ministry of Finance announced that the revised overall cost of the LRT 3 project was RM 16.6 billion, a reduction of 48% from the original initial cost of RM32bil The completion date was extended from four years to 2024.

According to the Ministry of Finance , new cost estimates result in savings of RM15bil.

CIMB Research has stated that what is most relevant to contractors is the WPC value of their backlog. Previous estimates assessed WPC at RM9bil for the entire LRT 3 project.

LRT 3 will be restructured from a PDP model to a "fixed price contract." This implies that any deviation from the fixed cost will be borne by the company PDP

Details of any changes to the MRCB-George Kent joint venture PDP contract will be disclosed later.

"We think it would be premature to assume that a fixed price contract implies a better deal for the PDP company, given the unknown WPC value." The value of the WPC can not be known or estimated that after the completion of the revised packages.

"The cancellation of the 2 km underground tunnel will have an impact on IJM Corp, as the value of the tunnel's RM1bil contract
accounts for 11% of "However, we note that the canceled underground reach of IJM can be replaced by new specifications at a lower cost.This also means that IJM may end up with a contract of lower value, rather than not

"The cancellation of the stations will be negative for WCT since the two global WPCs won will contain the construction of four LRT stations. The cancellation of the stations will remove one of the four stations from his backlog

"The downsizing of the train depot would have a minimal impact on WCT since phase 1 of Johan Setia's depot is almost The reduction of costs on the deposit packages is likely to have an impact on the remaining phase (s) of the construction of the deposit, which are not included in WCT's order book.

"As for Sunway (via Sunway Construction), the smallest number of LRT 3 stations would have no impact on its package, while the impact on the Muhibbah noise package should be minimal, "adds he