May 11, 2017

Construction: Still A Big Question Mark Over Bandar Malaysia

■ Over the weekend, local press reports laid out potential new names that could co-implement Bandar Malaysia’s masterplan.
■ Starbiz source did not rule out the possibility of the EPF coming in as a partner.
■ We highlight the stocks under our coverage that may still directly/indirectly benefit from Bandar Malaysia, despite failed IWH-CREC deal – Gamuda, MRCB and WCT.

No big leads but many names thrown out
● Over the weekend, local newspapers covered several “what if” scenarios following the termination of the share sale agreement (SSA) of the 60% stake in Bandar Malaysia to IWH-CREC consortium – valued at c.RM7.4bn. Developer TRX City recently said that a new tender for the Bandar Malaysia masterplan will be launched. On the surface, this may turn out similarly to the parceled tenders by Kwasa Land for the RRI land in Sungai Buloh. We expect more news from TRX City in coming weeks.

EPF to come in with Wanda and Tan Sri Desmond Lim?
● StarBiz reported that there was talk of Dalian Wanda Group of China bidding for the Bandar Malaysia project together with Malton Group, headed by Tan Sri Desmond Lim, who is also the new major shareholder and Executive Chairman of WCT. According to sources in Starbiz, there is also the possibility that the Employees Provident Fund (EPF) would take part in the group/consortium.
● We note that Tan Sri Desmond Lim was one of the major contenders for the Bandar Malaysia deal. It was reported in 2015 that Tan Sri Desmond Lim together with a Qatari state-backed consortium and IWH-CREC were the two frontrunners for the Bandar Malaysia deal.

bandar malaysia

Transport hub MOU for MRCB still valid
● We understand from management that MRCB’s MOU with Wondrous Vista, signed in Jun 2016, to explore opportunities to develop an integrated transport hub in Bandar Malaysia remains valid. In late Jan 2017, MRCB announced that it intended to form a strategic alliance with Wondrous Vista and Bandar Malaysia Sdn Bhd to acquire, construct, develop and operate the transport hub.
● Of the total 483 acres, 60 acres (12.4%) were allocated to the hub, where the high-speed rail (HSR) project’s KL terminus would be located. The MOU is valid for six months from Jan. While we acknowledge that an MOU is still preliminary, MRCB’s experience in transport hubs (KL Sentral) and transit-oriented developments lends this option some credibility, in our view.

Not all doom and gloom but delays possible
● At this juncture, we view the failed IWH-CREC deal as negative for the progress of Bandar Malaysia. We understood earlier that the forgone RM7.4bn injection of funds (from sale of the 60% stake) would fast-track the execution of phase 1. Phase 1, primarily consisting of the transport hub (and the KL terminus of the HSR project) was initially slated for launch this year. On the infra side, the latest news from MyHSR highlighted 1Q18 as the new timeline for HSR’s civil works tenders.

bandar malaysia project
Other China-backed jobs intact; Sector Overweight retained
● Despite the fallout from Bandar Malaysia and the implications for China-driven contracts, we remain optimistic about the job awards from the RM50bn East Coast Rail Line (ECRL) and the RM9bn Gemas-Johor Bahru double-tracking project that are long overdue. Gamuda remains our top big-cap pick for the rail theme. Downside risks to our sector call are major delays in job rollout, including China-driven ones.

source: CIMB Research – 11/5/2017