The 483-acre Bandar Malaysia project (located on the site of the former Sungai Besi Air Force base) is estimated to generate RM140bil in gross development value (GDV) while attracting foreign direct investments.
KUALA LUMPUR: CIMB Equities Research is maintaining its underweight for the construction sector on news the government decided to reinstate the Bandar Malaysia project, which was abruptly terminated in May 2017.
“Within our coverage, IJM Corp, Sunway (via Sunway Construction) and WCT Holdings are potential beneficiaries of the affordable housing scopes, although we believe they will be highly selective in their bids.
“New construction works in Bandar Malaysia will also benefit building material players over the longer run,” it said on Monday.
Last Friday, the Prime Minister’s Office (PMO) announced that the government has decided to reinstate the Bandar Malaysia project.
The 483-acre Bandar Malaysia project (located on the site of the former Sungai Besi Air Force base) is estimated to generate RM140bil in gross development value (GDV) while attracting foreign direct investments.
It is positioned as a niche urban development covering residential, commercial, office, leisure and rail transit-oriented development (TOD).
The initial phase of the project will feature the construction of a people’s park and 10,000 units of affordable homes, with Bumiputera participation throughout the project and priority for local content in the construction process.
“Similar to the East Coast Rail Line (ECRL), the Bandar Malaysia project is to be viewed within the larger context of fostering and cementing longer-term bilateral relations between Malaysia and China under the overall Belt and Road Initiative (BRI).
“The government will honour the RM7.4bn sale of a 60% stake in Bandar Malaysia Sdn Bhd to IWH-CREC Sdn Bhd, which fell through in 2017. Iskandar Waterfront Holdings Sdn Bhd (IWH) owns a 60% stake in the JV while China state-owned China Railway Engineering Corp. (CREC) owns the balance 40%,” the research house said.
CIMB Research said IWH’s share of total acquisition cost amounts to RM4.4bil (60% stake) while CREC’s share works out to RM2.9bil.
PMO’s announcement stated that the JV is to fork out RM1.2bil (original 10% deposit of RM741mil plus an additional RM500mil sum) within two months of this announcement.
“We calculated that the 60% stake sale for RM7.4bil translates into a RM12.4bil valuation for the 483 -acre land,” it said.
CIMB Research said phase one of the development could take up 100-150 acres of land (20-30% of total and size) over five to 10 years.
Assuming a general guideline of 10%-15% gross development cost (GDC) on the earlier estimated RM50bil to RM60bil gross development value (GDV), it roughly estimated that potential value of construction works could range from RM5bil to RM9bil.
“While the return of Bandar Malaysia is a positive surprise in terms of potentially catalysing new construction works and as the number of affordable housing units in the project is doubled from 5,000 to 10,000, potential beneficiaries are likely limited to smaller/medium-sized building contractors for which tenders could be competitive.
“The reinstatement of the Bandar Malaysia deal, in our view, does not suggest a revival of the KL-Singapore HSR (and the earlier planned terminus in Bandar Malaysia) as the latter is pending a review, with a decision due in May 2020,” it said.
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