PETALING JAYA: The revival of mega infrastructure projects is expected to be delayed to 2021 due to government’s financial constraint, amid the Covid-19 pandemic impact on the federal budget and the ongoing review to reduce project costs, according to Affin Hwang Capital Research.
The research house noted that the market expectations of the mega project revival, such as the Kuala Lumpur-Singapore High Speed Rail (HSR) and Klang Valley MRT Line 3 (MRT3) projects, have spurred a rebound in construction stock prices over the past few months.
“Hence, we do not expect the two projects to be included in the short-term economy recovery plan to be announced. But the two projects are likely to be included in the 12th Malaysia Plan 2021-2025 to be announced in early-2021,” it said.
In regards to the HSR project, Affin Hwang highlighted that the Malaysian and Singaporean governments have agreed to suspend the project for seven months until end-2020, from an earlier expectation of an end-May announcement, to allow the two countries to assess the changes requested by the Malaysian government.
The Singapore government stated that this is the final extension of the suspension period for the project.
“We remain cautious on the sector given the earnings forecast and order book replenishment risks as new government project roll out is expected to remain slow,” said Affin Hwang.
On the other hand, it also acknowledged that the finance minister’s engagement with various stakeholders would help the government in making relevant decisions for the benefit of various sectors.
The research house understands that the government is exploring public-private partnership (PPP) opportunities to develop public facilities and infrastructure.
It explained that the government’s commitment to support the RM260 billion Prihatin Rakyat Economic Stimulus Package could place some constraints to increase fiscal stimulus spending due to the rising federal government deficit, which is expected to be 4.7% of GDP in 2020E.
“Therefore, the government could unveil more PPP projects to promote private sector involvement to provide private financing, expertise and efficiency in the implementation of projects,” said Affin Hwang.
It elaborated that this could include deferred-payment and build-operate-transfer (BOT) projects for public facilities such as hospitals, water supply and renewable power-generation plants and highways.
The research house listed Gamuda Bhd, IJM Corp Bhd, Taliworks Corp Bhd and Ekovest Bhd as potential beneficiaries.
“However, we gather that there are not many urban toll highway projects that are viable on a fully privatised basis (low returns),” it said.
Meanwhile, Gamuda, Taliworks and Ranhill Utilities Bhd are involved in water supply projects. Affin Hwang said the government could provide soft loans and deferred payment of construction cost as an alternative to BOT in implementing these projects to make them more viable under a PPP initiative.
