PETALING JAYA: CGS-CIMB Research has maintained its “overweight” rating on the construction and materials sector, amidst the potential large-scale projects that could arise from the Kuala Lumpur-Singapore high-speed rail (HSR) project’s revival.
In a note today, it said the shortlisting of companies prior to the sale of the request for information (RFI) documents for the HSR project was a “market sensing exercise”, further emphasising that all parties involved are now starting on a “clean slate”.
According to the research house, some of the companies believed to be shortlisted include WCT Holdings Bhd, MMC Corp Bhd, and YTL, amongst others. To date, some 30 companies have submitted requests to obtain the RFI documents.
CGS-CIMB named YTL Corp Bhd (YTL) and its 78.6% owned subsidiary Malayan Cement Bhd (MCement) and HSS Engineers Bhd (HSSE) as the top beneficiaries from the potential HSR revival.
CGS-CIMB issued an “add” recommendation for YTL with a target price (TP) of RM1.91, MCement with a TP of RM5.55, and HSSE with a TP of 80.8 sen today.
“YTL stands out as a potential front due to its historical role as the original HSR promoter in 2008-2009. In addition, they were appointed as project delivery partner for the HSR southern section in 2018.
“The company’s experience in operating the express rail link (ERL) and its involvement in the construction of the Gemas-Johor Bahru double tracking rail further strengthens its position,” it said.
In addition, YTL’s cement subsidiary MCement gives it synergistic benefits.
The HSR project is envisioned to follow a design-finance-build-operate-transfer model, with the asset transferred upon the conclusion of the concession period.
It said these insights were shared during a luncheon organised by them for clients, and MyHSR Corp Sdn Bhd’s key management representatives.
However, as the project is in the RFI stage, CGS-CIMB highlighted that several important details remain undisclosed, such as the potential cost, land acquisition, and project timeline, amongst others.
Approval from Singapore
Additionally, CGS-CIMB said a crucial factor for the HSR project’s success is gaining approval from Singapore and addressing past issues such as the AssetCo structure and connecting the HSR terminus in Kuala Lumpur to the ERL.
Furthermore, it said MyHSR Corp has discussed the potential overlap between the HSR alignment and the Gemas-Johor Bahru double-tracking rail.
It was emphasised that the HSR serves different corridors and caters to distinct customer segments while the HSR targets business travellers valuing time efficiency.
“The HSR will primarily target for business travellers who value time whilst the medium-speed double-tracking line is catered to accommodate budget-conscious passengers. In a subsequent phase, there is a potential for the HSR to expand its reach to Bangkok,” it added.
With regards to land acquisition, CGS-CIMB also stated that Johor may also acquire land considered beneficial to the economic development of Malaysia as part of the HSR project.
The key downside risks would be political instability, and rising raw material costs and labour, it added.
At closing today, YTL was 6 sen lower or 4.05% at RM1.42 with a market capitalisation of RM15.65 billion, whilst MCement was 11 sen lower or 3% at RM3.56 with a market value of RM4.66 billion.
Meanwhile, HSSE closed 1 sen or 1.59% lower at 62 sen with a market capitalisation of RM309.99 million. - FMT
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