The Edge Market - CIMB: Gamuda a strong contender for KL-Singapore HSR PDP tender

The Edge Market

KUALA LUMPUR (Nov 21): The upcoming appointment of a project delivery partner (PDP) for Malaysia’s portion of the KL-Singapore High Speed Rail (HSR) is seen as a “positive surprise” for Malaysian contractors, said CIMB Research today.

In a note, CIMB Research analyst Sharizan Rosely, in reiterating his “overweight” call on the construction sector, said the tender call suggests Malaysian contractors will have a “bigger role to play” in the project management and civil works scopes.

“Essentially, the PDP will not have a financing role but act mainly as a project manager,” said Sharizan.

“This is therefore similar to the PDP model used for the MRT Sungai Buloh-Kajang (SBK) Line (MRT1), which is currently in operation, and the MRT Sungai Buloh-Serdang-Putrajaya (SSP) Line (MRT2), which is currently under construction,” he said.

As such, it highlighted Gamuda Bhd as a strong contender for the project, given that it's the only local contractor with the relevant experience and skillset to manage a rail project on a massive scale, via its MMC-Gamuda JV.

"Gamuda Bhd remains our top big-cap rail pick for its exposure to both rail underground civil works and PDP scopes,” he said.

Under the PDP model, Sharizan said the MMC-Gamuda Joint Venture (JV) has completed the PDP scope for the MRT1 and is completing the MRT2 PDP scope, worth RM12.7 billion and RM16.5 billion respectively — excluding underground works — based on a 6% PDP fee.

“As widely reported in the press, the total estimated value of the HSR ranges from RM50 billion to RM60 billion. Based on our back-of-the-envelope calculation and going by the 50%-60% PDP portion for MRT1 and MRT2, the PDP scope for HSR could be worth RM25 billion to RM40 billon at the minimum,” said the analyst.

Sharizan is anticipating more positive sector newsflow in the months ahead. Key risks, he said, are project delays and funding.

“Also, we believe that adopting the PDP model could give rise to the possibility that the Malaysian government – through DanaInfra Nasional – will undertake the financing of the HSR’s infrastructure and civil works, but excluding the rail assets,” he added.

Some 96% or 335km of the 350km-long rail line will be located in Malaysia, while the other 15km sits within the Singapore border.

Under the tender, the PDP will be responsible for developing the detailed design for the infrastructure works, which include the station and the alignment structures such as bridges, tunnels and embankments.

The PDP will also be required to assist with interface management, land acquisition processes and stakeholder engagement activities, MyHSR Corp said yesterday.

The company aims to complete the PDP tender in 2018, which puts it within the same timeframe as the tender for HSR’s asset-holding company (AssetsCo), said Sharizan.

“Tender evaluation for both scopes will likely take six to nine months and we expect the awards to occur in early second half of 2018.”