HSR termination only temporary setback for construction sector

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4 January, KUALA LUMPUR – Although the recent termination of the Kuala Lumpur-Singapore High-Speed Rail (HSR) project is a negative development for the construction sector, this is only a temporary setback, said Kenanga Investment Bank Bhd.

The research firm has maintained its ‘Overweight’ recommendation on the sector, as it expects the COVID-19 recovery theme to grow in prominence in 2021, thus setting the narrative for amplified share price reaction upon news flows amid a liquidity-filled market.

Its key predictions and themes for 2021 include higher property development launches to benefit building contractors, small caps to outperform big caps in share price performance due to tighter floats, and Light Rail Transit 3 (LRT3) earnings to kick in strongly.

“We are negative (on HSR termination) as the absence of HSR would affect the project’s visibility pipeline in the medium term, and many developments surrounding the HSR alignment may now take a longer gestation period to materialise, such as Bandar Malaysia.

“However, we note that there is a flip side to this and it may not be as bad as it seems.

“Without the HSR, we note that the government’s fiscal purse would be less tight, freeing higher allocations to other high impact projects such as Mass Rapid Transit Line 3 MRT3),” it said in a note.

To recap, the MRT3 had a tentative price tag of between RM45 billion and RM60 billion, but due to concerns on the government’s finances, the quoted price tag had since been halved to RM20 billion on reduced scope and coverage.

“Hence, if the terminated HSR’s budget were to be rechannelled to MRT3, we will view it positively as we believe MRT3’s impact post-completion would be more immediate and effective to the economy compared to the HSR,” it added.

As at 11 am, Bursa Malaysia Construction Index eased 5.53 points to 181.14.

Among the construction counters, Gamuda lost 12 sen to RM3.77, Sunway Construction bagged two sen to RM1.90, MRCB trimmed 2.5 sen to 45 sen, Ekovest slipped four sen to 48 sen, Ageson and Top Builders inched up half-a-sen each to 13.5 sen and 12 sen, respectively, Jaks eased two sen to 67.5 sen while SCBuild was flat at six sen.

READ: 11 properties in Cheras near MRT stations

The HSR project had been terminated after Malaysia and Singapore failed to reach an agreement on changes proposed by Malaysia before the project agreement lapsed on Dec 31, 2020.

In a joint statement by Prime Minister Tan Sri Muhyiddin Yassin and his Singapore counterpart Lee Hsien Loong on Jan 1, the leaders said the Malaysian government had proposed several changes to the HSR project due to the impact of the COVID-19 pandemic on the Malaysian economy.

“Both governments had conducted several discussions with regard to these changes and had not been able to reach an agreement. Therefore, the HSR Agreement had lapsed on Dec 31, 2020,” it said.

– BERNAMA


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