Newsbreak: Double-tracking project moving again

This article first appeared in The Edge Malaysia Weekly, on October 30, 2017 - November 05, 2017.
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MAJOR subcontracting work for the RM8.9 billion Gemas-Johor Baru double-tracking and electrification project is expected to be awarded to local companies over a decade after it was mooted.

According to industry sources, the project is close to being awarded — “in the next few weeks, if all goes well,” says one industry executive.

Recall that the overall project was awarded to a consortium of three China-based companies in October last year — China Railway Construction Corp Ltd (CRCC), China Railway Engineering Corp (CREC) and China Communications Construction Co (CCCC). CRCC holds a 40% stake in the joint venture while CREC and CCCC each own 30%.

However, the local subcontractors have not been appointed yet, causing the project to stall despite being awarded more than a year ago.

It is said that the project has run into some local issues, which need to be resolved before it can proceed.

The names that have emerged will not surprise those who have been following updates on the project. They are Fajarbaru Builder Group Bhd and YTL Corp Bhd.

Another company that will take slice of the pie is SIPP Rail Sdn Bhd, which is linked to Sultan of Johor Sultan Ibrahim Sultan Iskandar.

Recall that SIPP Rail has taken up a 10% stake in Express Rail Link Sdn Bhd (ERL), which is 45% controlled by YTL Corp. ERL owns and operates the KLIA Express train that connects KL Sentral to Kuala Lumpur International Airport.

It is worth noting that SIPP Rail has previously been named as a partner in the project, although its scope was ambiguous. Based on Companies Commission of Malaysia’s records, SIPP Rail had a paid-up capital of RM100,000 as at June 2016, against RM102,738 in retained losses.

The exact division of work between the three companies is not known. Channel checks reveal that Fajarbaru is conservatively expected to secure RM800 million to RM1 billion worth of work. SIPP and YTL are likely to bag the lion’s share of the subcontract work.

Sources familiar with the matter caution that margins may be under pressure. The delay in executing the project and labour shortage were among some of the reasons given.

“There are a large number of ongoing mega-infrastructure projects in Malaysia now, and that has created a high demand for labour and raw materials,” says one source.

The double-tracking and electrification project will span 191.4km and include nine passenger stations. There will also be two rolling stock depots and three open stations.

Against this backdrop, Fajarbaru’s share price has fallen 14.6% over the past four months. The stock closed at 85 sen last Friday. The decline started after the company undershot market expectations to secure a civil work package from the third light rail transit project.

Currently, Fajarbaru’s market capitalisation is only RM312.6 million and the stock is valued at 11.04 times forward earnings. Even a relatively small slice of the pie would be sizeable for Fajarbaru.

Meanwhile, YTL Corp has had a lacklustre year with its share price falling 16.13% year on year to close at RM1.30 last Friday, barely above a 52-week low. The group, however, is substantially larger than Fajarbaru, with a market capitalisation of RM13.97 billion.

Securing the double-tracking project would be a welcome break for YTL Corp, given its noticeable absence from the mega-infrastructure award list in the past five years.

YTL Corp is valued at 15.85 times forward earnings.