Jun 8, 2010

RM30B MRT Projects - Gamuda and MMC joint proposal

Ambitious, but positive.  A new MRT system in the Klang Valley costing more than RM30b is under  the government’s study. Gamuda and MMC have teamed up yet again for the third time, with a proposal submitted. Although the partnership may not bag the entire RM30b, their experience enhances their resume in securing at least a portion of the works. It will be positive for Gamuda (Buy; TP: RM3.80) and the construction sector if the project takes off. At this juncture, project bankability and the form of participation are our main questions. 

Three lines.  The New Straits Times today headlined a special task force being set up within the Cabinet Committee on Public Transport to study a proposal for three new mass rapid transit lines (MRT) in the Klang Valley costing more than RM30b. Gamuda and MMC have submitted a joint proposal for this massive project to integrate the existing monorail and light rail transit (LRT) systems. The Edge Daily had reported yesterday on this proposal, but the details were scant.

Mostly underground.
The three lines will comprise: (i) Sg Buloh-Kota Damansara-KL-Cheras-Kajang, (ii) Sg Buloh-Kepong-KL-Serdang, and (iii) a loop surrounding KL’s central business district (CBD). The first MRT line (i), in our view, seems to run on a parallel alignment with the proposed new LRT line that runs from Kota Damansara to Cheras (and potentially ending at Balakong) where MRCB is in the running. The proposed MRT lines will be mostly underground especially in the CBD.

Positive for Gamuda. The project will be put on open bidding which is a positive move away from the traditional way of contract awards, to the project proposers. Gamuda’s experience in tunnel works especially in highly densed traffic areas seen in the SMART and Kaohsiung MRT projects will add weight to its resume in vying for this new Klang Valley MRT project. We expect this to be a design-and-build project. It will
thus allow Gamuda to control and secure better construction margins riding on its strong design engineering capability.

Our questions. Project bankability and the form of participation are our main questions. The existing Klang Valley LRT and monorail systems, originally awarded under the build-operate-and-transfer (BOT) mode, suffered massive losses and were eventually taken over by the government, via Syarikat Prasanara Negara Bhd. The proposal LRT extension lines will also be funded by Prasanara. Although Prasanara’s debts are off the government’s balance sheet, it remains to be seen on the amount of debt it can further raise to fund the new MRT system. 

Public-private partnership? We would not be surprised if the project is undertaken on a public-private partnership basis, a form of working arrangement to be emphasized in the 10th Malaysia Plan (10MP), to be unveiled this Thursday. If this is the case, the project’s attractiveness to the contractors would depend on the terms of participation. We do not expect this project to be awarded anytime soon due to the massive cost
and many issues to be ironed out. If  there is a go-ahead, we would expect construction to start towards the latter half of the 10MP (2011-2015) the earliest, running into the end of the 11MP (2016-2020).

by Maybank Investment Bank