At a press conference yesterday, SPNB announced the details on the LRT extension,
whereby the Kelana and Ampang lines will be extended by 17km and 17.7km
respectively. Prequalification tenders are expected to be called next month and actual
award maybe in early 2010, with the construction period estimated at 3 years. We see 4
main potential beneficiaries of the LRT extension job - UEM Builders, Gamuda, IJM and
MRCB - by virtue of their experience in such jobs. We take this recent development as
a prelude to a tide of positive news for the sector. Our rating on the sector has been
upgraded from Neutral to OVERWEIGHT.
Press conference held. At yesterday’s press conference, Syarikat Prasarana Negara Bhd
(SPNB) provided the details on the much anticipated Light Rail Transit (LRT) extension. While
the investing community was (sadly) not invited for the conference, we managed to zoom in
on the conference’s key takeaways from our contacts.
Details on the Kelana line. The Kelana Jaya line would be extended from the existing
Kelana Jaya station into Subang Jaya and USJ before ending in Putra Heights. A total of 13
stations will be located along the 17km long Kelana extension. There will also be an
interchange at the existing KTM line located behind Carrefour in Subang Jaya.
Details on the Ampang line. The extension of the Ampang line will begin from the existing
Sri Petaling station, passing through Kinrara, Puchong and also ending in Putra Heights. The
slightly longer 17.7-km Ampang extension will also have a total of 13 stations. Both the
Kelana and Ampang extension lines will connect at an interchange in Putra Heights. The map
and alignment of both lines are shown in the Appendix.
Status of the job. SPNB said conditional approval for the project was obtained on Aug 25,
’09 and most contractors have submitted their “Expression of Interest” for the job. Starting
today, the proposed alignment will be on public display for 3 months to enable the public to
provide feedback on the proposals and highlight any issues that may impact on residents.
What’s next? We understand that prequalification tenders are expected to be called next
month. From our channel checks, most contractors said they expect the final tenders to be
called by year-end and the actual award by late 1Q10/ early 2Q10. This timeline jives in with
SPNB as it expects construction to begin in early 2010. Barring any unforeseen
circumstances, SPNB should receive the final letter of approval after the 3-month period for
public feedback ends. Construction is expected to take 3 years.
Ridership to double. Currently, the average daily passenger ridership is 180,000 for the
Kelana line and 170,000 for the Ampang line. Upon full completion of both extensions,
passenger ridership is expected to double. We believe this is possible as the extended lines
mainly penetrate the populated mature townships such as Subang Jaya, USJ and Puchong.
See important disclosures at the end of this report
OSK Research
OSK Research | See important disclosures at the end of this report 2
See important disclosures at the end of this publication
Project to cost RM7bn. The total cost of the extensions is a whopping RM7bn. We gather that this
includes RM2bn in land acquisition cost. An issue that remains unresolved is the number of packages to
be awarded. We gather from one contractor that the job is likely to be awarded in 4 packages - 2 each
for the Kelana and Ampang extensions. Subtracting land acquisition cost, each package would be
valued at RM1.25bn, comprising civil and M&E works.
Project financing. To finance the RM7bn job, SPNB has raised RM2bn in bonds, which we think will be
used for land acquisition. During the 3-year construction period, we believe another RM2bn worth of
bonds will be raised, mainly for progress payments to contractors. SPNB has said that it currently has
RM2bn in internal funds. We postulate that funding should not be an issue as (i) SPNB is wholly-owned
by the government, which provides security to borrowers, and (ii) the anticipated doubling of passenger
ridership should help service the debt.
Potential beneficiaries. We see 4 potential beneficiaries of the LRT extension: UEM Builders (Not
Listed), Gamuda (SELL, TP: RM2.94), IJM (NEUTRAL, TP: RM6.21) and MRCB (TRADING BUY, TP:
RM1.69). We reckon that Gamuda has the necessary expertise to undertake the job given its experience
with the Kaohsiung Mass Rapid Transit (MRT) in Taiwan. IJM and Road Builders (acquired by IJM in
2007) were one of the main subcontractors for the existing LRT line. On the other hand, MRCB was
involved in the existing LRT portion at KL Sentral. Lastly, UEM Builders was the main contractor for the
existing line. Another potential beneficiary is Mudajaya (BUY, TP: RM4.80) which previously constructed
some of the existing LRT stations. It also built the ERL link at KLIA.
Upgrade to OVERWEIGHT. We take this latest development as a prelude to more positive news for the
sector. Expectations of the awarding of more projects should keep contractors in the limelight, in our
view. As such, we are upgrading our sector rating from Neutral to OVERWEIGHT. For those concerned
over the lofty valuations, we suggest a switch to smaller cap contractors. Our top sector picks are
Mudajaya and WCT (BUY, TP: RM3.12). We also like Naim Holdings (BUY, TP: RM3.46) for Sarawak
related plays.
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