By Stephanie Jacob
Maybank KE reiterated its overweight calls on both the construction and property sectors on the back of news that the Klang Valley MRT (KVMRT) 2 project is on track to obtain government approval in the middle of this year.
The bank backed research house made the call following an update meeting with Gamuda’s group managing director Lin Yun Ling. According to its analysts, the progress of the second part of the massive MRT project left them upbeat as it will help replenish the order books of construction companies, while creating a buying spree for properties close to the new stations which will benefit the property players.
In terms of KVMRT 2’s timeline, Lin said that the Land Public Transport Commission (SPAD) has already completed their in depth studies and are ready to table their results to the cabinet. He added that he hoped for the requisite approvals to come by July 2013 at the earliest.
Lin explained that the KVMRT 1 will likely be completed around mid-2015 and it will be crucial that the civil works of the KVMRT 2 begins immediately. As such, timely approvals are necessary, to ensure that other requirements such as land acquisitions and public feedback on alignment can be done in time, to tie in with the completion of part one of the MRT.
Looking further ahead said Lin, KVMRT 2 should be completed by 2020. While KVMRT 3 is scheduled to be finished in 2021.
This second line is anticipated to cost RM24.9 billion to construct – RM2.7 billion more than the first part as it will be longer and have more stations along the line. Construction is expected to be done in two phases. Phase one will connect Sungai Buloh to Serdang and phase two will link Serdang to Putrajaya.
KVMRT 2 is the radial line and it is expected to have the highest ridership of the MRT system, said the Maybank KE report. It is estimated that there will be a ridership of around 11, 100 people per km versus the other lines which are forecasted to see around 10, 000 people per km. According to the report this is because the line will connect areas like Damansara Damai, Kepong, Batu, Kg. Pandan and Serdang – which are densely populated lower income community areas.
A boom is also likely in the property market, as there will be increased interest in property surrounding the new MRT stations. Property developers in that area will likely see an increase in uptake of their developments.
The Maybank KE report highlights the 1MDB Tun Razak Exchange project, SP Setia Bhd’s Selayang developments, YTL Land & Development Bhd’s projects in Sentul, UEM Land Holdings Bhd’s projects and IOI Corp Bhd via IOI Properties Bhd’s projects in the Putrajaya area as likely beneficiaries of the KVMRT 2.
Part two of the KVMRT project will also be important for the construction sector as it will allow the industry players to replenish order books following the conclusion of part one of the line, said the report.
Among the local players, companies like IJM Corp Bhd and Sunway Bhd which are currently working on the elevated portion of KVMRT 1 will likely make bids to construct the second portion. Others such as WCT Bhd which failed to meet the criteria the last time around are also likely to try again for part two.
The research outfit also highlights that joint venture MMC-Gamuda will likely be the biggest beneficiary of construction work coming from KVMRT 2. The joint venture is currently the project delivery partner (PDP) for KVMRT 1, and so far it has received positive feedback on its progress, said the report.
Maybank KE says that with MMC-Gamuda’s project management experience and construction expertise the company is likely to be a frontrunner to secure both the PDP role for part two and tunneling works for the project.
Outside the KVMRT project, Gamuda is also likely to put in a bid for the KL-Singapore High Speed Rail project together with a foreign partner. If they can secure this project, it will further bolster the company’s order book.
With strong prospects going forward, Maybank KE is reiterating its buy call on Gamuda and raising its target price to RM5.30 from RM4.80 previously. The revised price is based on 16.5x 2014 earnings, which is slightly above its long-term mean of 16.0x.
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