Maybank Investment Bank Research's Wong sees the LRT project as a game changer for Penang’s property market.
PETALING JAYA: Any Malaysian who has to balik kampung for the festive season will undoubtedly know that Penang experiences traffic congestion that is almost as bad as the Klang Valley on a regular working day.
Therefore, who can blame analysts for feeling upbeat that the Penang Light Rail Transit (LRT) project has finally received the green light from the Transport Ministry on March 29, if only from a transportation point of view?
However, as is professionally required of these expert observers, they have also meticulously lined up the economical and sectoral benefits that can be reaped from it.
Head of equity research at Maybank Investment Bank Research Wong Chew Hann started the ball rolling by calling the LRT project a game changer for Penang’s property market, along with several other major infrastructure projects that are in the works for the northern state.
Likewise, CIMB Securities analyst for the construction sector Mak Hoy Ken is retaining his “overweight” outlook for the industry, hoping that the rollout of the Penang LRT and Pan Borneo Sabah Phase 1B in the coming months could herald the beginning of more big ticket flows for the rest of the year, and beyond.
Offering a broader picture view, he told StarBiz that these projects may also point towards a more equitable spread of development expenditure across all states in the country.
Refocusing on Penang, he reported that the construction of the Penang LRT will commence this year after receiving the cabinet’s nod, with the project being officially handed over to Mass Rapid Transit Corp Sdn Bhd (MRT Corp), which will develop and own it.
The Mutiara Line, Penang’s first LRT system, will have 20 stops, including two interchange stations at Komtar and Penang Sentral.
“Concurrently, the federal government has offered Gamuda Bhd
’s 60%-owned SRS Consortium Sdn Bhd civil works contracts under a ‘single sourcing, request for proposal mechanism.
“This is to develop the civil works for the Silicon Island to Komtar route – which constitutes the first of three segments under the 29 km long LRT track,” Mak pointed out.
He noted that the offer was made at the request of the Penang government, which appointed SRS Consortium as its Project Delivery Partner in August 2015 for the broader Penang Transport Master Plan, of which Mutiara Line is a component.
Estimating that the Silicon Island-Komtar route will be constructed within the next five to six years before the scheduled commencement of Mutiara Line’s services by 2030, Mak notably said its total project cost can only be determined after negotiations between MRT Corp and SRS Consortium conclude in six months.
Interestingly, by extrapolating indicative rates for Shah Alam LRT and considering higher input costs as a preliminary estimation measure, he revealed that the civil works portion for this 24 km stretch could be worth nearly RM8bil.
“We believe the project could be further subdivided into more than 30 packages to benefit a wider spectrum of subcontractors and suppliers, besides ensuring an equitable level of bumiputra participation,” he predicted.
As such, he is expecting Gamuda to be in the driver’s seat to play a leading role in the construction of the Silicon Island-Komtar route.
Factoring in the group’s effective 60% share of construction works, he reckoned for Gamuda to gain approximately RM4.8bil worth of order book accretion, assuming that contract negotiations between SRS Consortium and MRT Corp are concluded by the end of Sep 2024.
Mak further projected that upside to Gamuda’s order book is highly likely if it chooses to consolidate its shareholding in SRS Consortium and tighten its grip on overall project delivery.
In addition, he said: “The completion of the Mutiara Line would enhance the attractiveness of Silicon Island, a project jointly developed by SRS Consortium and the state government through Penang Infrastructure Corp Sdn Bhd.”
From an outlook standpoint, Mak said that Gamuda and Malaysian Resources Corp Bhd (MRCB) appear to be the standout beneficiaries of the LRT rollout in Penang, through their respective land banks of Silicon Island and Penang Sentral, as those are major connecting points of the transit system.
He elaborated that the construction of an LRT link to Komtar will significantly benefit Penang Sentral over the medium term as MRCB progresses to the next phases of developing its transport hub.
“We also proffer that IJM Corp Bhd and WCT Holdings Bhd could emerge as prominent contenders for various other work packages under Mutiara Line,” he said.
Moreover, Mak projected that IJM could also emerge as a contender for the systems and rolling stock component if it could extract synergistic benefits from its proposed acquisition of a 45% stake in Pestech International Bhd.
Separately, he reckoned that with Muhibbah Engineering Bhd having recently secured a noise barrier package contract worth RM22mil under the Johor Baru-Singapore Rapid Transit System Link, it could turn out to be a frontrunner for a similar job with the Penang LRT.
“Specialist contractors like Econpile Holdings Bhd has also expressed its interest in vying for the substructure packages once bidding commences, while from a supply perspective, Malayan Cement Bhd and Ann Joo Resources Bhd will look to benefit from order flows for cement and steel, respectively,” he added.
Of note, Wong had earlier highlighted that other notable projects that are being planned for Penang include the Penang International Airport expansion - which would almost double the airport’s handling capacity - and Silicon Island, which has big potential to draw in foreign direct investments (FDIs) and create jobs.
“In addition, a third island-mainland link, under the Penang Transport Master Plan, remains a possibility. We believe these projects will help Penang to sustain its longer term growth trajectory, by drawing in targeted FDIs centered around high-tech manufacturing,” she said.
In resonance with Mak, another analyst with a local research firm opined that it is heartening to see large-scale projects being approved in various states across Malaysia, telling StarBiz that the further improvement in infrastructure could be helpful in attracting further FDIs.
“We are positive with the development in Penang and Johor.
“Right now, the following item on the agenda would be to press on with the MRT 3 project in the Klang Valley and see how the government would proceed - hopefully soon - with the tender process and land acquisition,” the analyst said.
