Resumption of ECRL project timely as catalyst for equity market

KUALA LUMPUR (April 18): The decision to resume the East Coast Rail Link (ECRL) project after nine months of negotiations was timely, as it will become a catalyst for the equity market since the external environment has been very volatile, says Bank Islam Malaysia Bhd.

Its chief economist, Dr Mohd Afzanizam Abdul Rashid said the higher local participation in the project bodes well for the construction-related sector as the local contractors would stand to benefit.

“This, in turn, will have positive multiplier effects as there will be more demand for building materials such as steel and cement,” he told Bernama.

Mohd Afzanizam said in the long run, the project would promote the construction of other infrastructure such as expressways and ports that would facilitate international trade.

However, MIDF Research still maintained a “neutral” stance on the construction sector, recognising that the expectation on the ECRL’s revival was already priced in.

“This was reflective on the KL construction index (KLCON) performance, which was seen moving faster than its fundamentals, ahead of the announcements.

“Immediate beneficiaries of the ECRL project are Lafarge Malaysia (which produces cement, construction aggregates, and concrete) and HSS Engineers, where both counters have clinched sizable jobs from China Communications Construction (ECRL) Sdn Bhd (CCC) previously,” it said.

MIDF Research said the other potential beneficiaries in its coverage are Gabungan AQRS (buy, target price (TP) of RM1.87), Muhibbah Engineering (buy, TP: RM3.73), IJM Corp (neutral, TP: RM1.85), MRCB (buy, TP: RM0.90) and WCT (neutral, TP: RM0.88).

MIDF Reaserch said it noted the major revision made to the rail project which saw part of the southern portion re-routed to Negeri Sembilan.

“Further to that, the current track is aligned to bypass the steep section of the Titiwangsa Range as part of the cost-cutting exercise.

“Based on the new alignment, the journey from Port Klang will have to first head south to Jelebu, Negeri Sembilan, before moving up to Mentakab, Pahang,” it said.

Asked if the different alignment would result in lower benefits and spillover effects, Thought Partner Group Malaysia group managing partner Abi Sofian Abdul Hamid said it depends on the perspective on how a party wants to look at it.

“Initially, the re-alignment means passing through new areas where there was no immediate demand for rail. However, it also opens up new opportunities to create new townships and industrial areas, provided there is a real plan with proper coordination,” he said.

Abi Sofian said the new plan should look at revising the existing Logistics and Transport Master Plan as land near the new stations must have allocations for really affordable housing.

“The government should freeze (property prices) or prevent speculators on affected areas along the alignment. With housing taken care of, there must be employment opportunities nearby, he said.

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Abi Sofian said the type of jobs created must be looked at and this may require a review into available resources from agencies such as the Federal Land Consolidation and Rehabilitation Authority (Felcra).

“The new alignment also avoids additional impact to the environment, especially to the Klang Gates Quartz Ridge (to leave it untouched).

“With the new contract, it is understood that lower costs, clearer areas of responsibilities will be shared between local and the Chinese companies,” he added.

On Monday, Malaysia Rail Link Sdn Bhd (MRL) and China Communications Construction Company Ltd (CCCC) agreed to form a 50:50 joint-venture (JV) company to manage, operate and maintain the ECRL rail network.

In totality, the project would commence at a discounted price (for the construction works) of RM44 billion, compared with the RM65.5 billion when it was first announced by the previous government in 2016.

Besides reduced cost, the new alignment from Kota Bharu-Mentak­ab-Jelebu-Kuala Kelawang-Bangi/Kajang-Putrajaya and on to Port Klang has resulted in a shorter network of 648 km from the original 688 km.

The realignment would also see the rail line pass through six stations in Terengganu — Chukai, Kema­sik, Dungun, Pengkalan Bera­n­gan, Kuala Terengganu and Kam­pung Raja.

Meanwhile, Dr Shahrin Nasir, Deputy Director (Industrial Linkages and Commercialisation), Malaysia Institute of Transport, Universiti Teknologi MARA, said the ECRL deal would also benefit Malaysian the palm oil industry.

“As been mentioned by the Prime Minister Tun Dr Mahathir Mohamad, the Chinese government has also agreed to buy palm oil from Malaysia following the project’s resumption. This is a part of negotiated deal and it will enhance the trade between both countries,” he said.

Earlier, Dr Mahathir was reported saying that Putrajaya would leverage on the project negotiations and obtain China’s agreement to increase its purchase of palm oil.

Primary Industries Minister Teresa Kok Suh Sim had also expressed her hopes for the Prime Minister to raise this issue to the Chinese government during his working trip to the One Belt, One Road Summit in Beijing at end-April.

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