KUALA LUMPUR: The rail contracts downturn has been set in motion after two mega projects worth about RM100 billion were scrapped by the Pakatan Harapan government, said CIMB Investment Bank Bhd.
The effects would be felt from contractors to building material providers, CIMB said in a report.
The government scrapped the MRT Line 3 project, estimated to cost RM40 billion to RM50 billion, and the estimated RM50 billion Kuala Lumpur-Singapore High Speed Rail to control the country’s debt.
CIMB said the hardest hit would be those carrying out rail-related jobs such as Gamuda Bhd, MMC Corp Bhd, George Kent (M) Bhd.
It will also affect rail outlook job for WCT Holdings Bhd, Malaysian Resources Corp Bhd, Sunway Construction Group Bhd and Gabungan AQRS Bhd.
CIMB said Lafarge Malaysia Bhd would be affected too as the projects’ cancellation dashed any hope of a surge in infrastructure jobs to absorb the overproduction of cement.
Kimlun Corp Bhd, a producer of tunnel-lining segments and segmental box girders, will similarly not be spared.
CIMB warned that the RM8.9 billion Gemas-Johor Bahru electrified double tracking (EDT) and the RM60 billion East Coast Rail Link (ECRL) job could be at risk of being terminated.
“We believe any upcoming big-ticket rail projects are now at risk of deferment, renegotiation or outright cancellation. These include the Gemas-Johor Bahru electrified double tracking project and the ECRL,” said CIMB, which remained underweight on the sector.
Meanwhile, Fitch Group unit BMI Research reportedly said Malaysia’s construction industry would only grow an average of 4.3 per cent a year until 2022 without the HSR and ECRL projects.
The firm added that axing the two projects, which it said have a total investment value of US$40 billion (RM158.8 billion), would also hurt property and industrial development along the routes of both railways.
“Not only did the project itself, estimated to cost more than US$28 billion (RM111.16 billion) represent a significant component of Malaysia’s transport infrastructure growth, stations along the railway would have also served as anchors for new commercial, residential and industrial developments Malaysia and Singapore.
“This will also exacerbate the already-negative impact Mahathir’s surprise victory in this month’s elections has had on foreign investment,” BMI Research was quoted by the Malay Mail as saying in its latest report yesterday.
BMI said the ECRL project would be disrupted in the coming weeks due to the high cost and reliance on Chinese financing.
However, the firm said the construction sector was quite resilient and will be able to bounce back due to the Pakatan Harapan government’s priority on public infrastructure as per its election manifesto, even if the scale of projects would be smaller and focused on transport and utility projects that address quality-of-life and cost-of-living issues.