Construction Sector - MRT lines 2 and 3 by early 2013? Overweight

- The Star reported Pemandu as saying that feasibility studies on the proposed second and third MRT lines in the Klang Valley are well underway. The federal government could make a decision on the lines by early next year.

- Recall, the second MRT system is a circle line that would make an orbital loop around Kuala Lumpur city centre. To be built in two phases, the 41km-long line would be served by 30 stations.

- The third line follows a similar northwest-southeast route that the ongoing Sg.Buloh-Kajang (SBK) MRT line is presently built on. However, the  former’s route has shifted slightly northwards. It will run from Selayang at the northwest to Seri Kembangan in the southeast trajectories. The route measures 46km, and is supported by 20 stations.

- We understand that all three MRT lines are supposed to be functional by 2020. Indeed, the second and third lines are scheduled to be completed in phases between 2020 and 2030.

- To ensure sufficient construction capacity, we had previously written that any new lines will likely take up to two years to be fully ramped-up – i.e. by end-2014 – assuming a decision can be made by year-end/early-1Q13.

- We, however, hold the view that it could be a little premature to expect any tangible decision before the 13^th  General Election, particularly on its actual implementation.

- All said, progress on the SBK line is well underway. A total of 48 out of the 85 tenders have already been dished out. More importantly, we reckon that all of the major components for elevated civil works (including stations) under the MRT line have now been awarded. Another 10 are at the tendering stage, while 27 more have yet to be called.

- The latest is for the track works worth between RM800mil-RM900mil, of which the Business Times has tipped the DRB-Mitsubishi Heavy Industries Ltd JV to win the contract this week. The job forms roughly RM1.2bil worth of fresh contracts that MRT Corp is due to award soon.

- The good progress on contract flows is in-line with Gamuda’s recent guidance that 98% of the contracts can be awarded by year-end – ahead of the earlier target of 94%-95%. 

- The balance of awards would now focus mainly on the remaining systems/M&E contracts – where local participation would likely be minimal – in our view.

- Hence, we expect investor’s near-term expectations to slowly gravitate from contractors to the suppliers of building materials, particularly with the multi-year supply prospects for cement and steel.

- We continue to advocate Ann Joo Resources (steel), Lion Industries (steel), Lafarge Malayan Cement (cement), IJM Corp (via ICP: concrete-based products) and KimLun Corp (tunnel lining, segmental box girdles).

Source: AmeSecurities