KUCHING: Margins from the East Coast Rail Link (ECRL) could be less attractive for large-cap contractors to participate due to the stiff competition, analysts opined.
However, they pointed out that the project could benefit smaller players.
According to the research arm of Kenanga Investment Bank Bhd in a construction sector update, listed companies had year-to-date clinched a total worth of RM8.3 billion, down 12.7 per cent year on year (y-o-y), of works by its estimates.
“While the market is all hyped up over projects like ECRL for which total project cost was reduced to RM44 billion, we believe this particular space to be overly crowded and competitive as there are 859 Grade 7 classified contractors participating in the pre-qualification exercise – all competing for the 40 per cent civil work portion of ECRL possibly valued at circa RM18 billion or less,” Kenanga Research said.
“Assuming 10 per cent of the Grade 7 contractors are successful in clinching an award from ECRL, it would translate to an average contract size of RM225 million for each player.
“Due to the stiff competition, we opine that the margins from ECRL would be less attractive for large-cap contractors to participate, but would be benefit smaller players that are hungry on order-book replenishment.”
As for the second half of current year 2019 (2HCY19), the research arm believed that the contract flows could be slower than 1HCY19 if contract awards from Klang Valley Double Track (KVDT) and ECRL commences in 2020, bringing total awards to less than RM16 billion for 2019.
“Nonetheless, with the highly anticipated Budget 2020, we hope that the government will revive mega infrastructure projects like Mass Rapid Transit Line 3 (MRT3) and High-Speed-Rail.”