Affin Hwang Capital Research expects the revival of mega infrastructure projects in Malaysia to be delayed to next year. This comes as the government faces financial constraint amid the pandemic’s impact on the federal budget as well as the ongoing review to lower project costs.
Affin Hwang noted that market expectations for the revival of mega projects such as the Klang Valley MRT Line 3 (MRT3) and Kuala Lumpur-Singapore High Speed Rail (HSR) have triggered a rebound in prices of construction stocks in the last few months, reported The Sun Daily.
“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.
The research house underscored that the Singaporean and Malaysian governments have agreed to defer the HSR project for seven months until end-2020 to allow both countries to assess the changes proposed by Malaysia.
Singapore has said that it is the final extension of the project’s suspension.
“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.
Nonetheless, the research house acknowledges that the finance minister’s engagement with several stakeholders will help the government make relevant decisions.
It understands that the government is looking at public-private partnership (PPP) opportunities to develop public infrastructure and facilities.
The commitment of the government to support the RM260 billion Prihatin Rakyat Economic Stimulus Package may put some constraints to raising fiscal stimulus spending on the back of growing federal government deficit, which is predicted to stand at 4.7% of GDP by end-2020, said Affin Hwang.
“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.”
This may include deferred-payment as well as build-operate-transfer (BOT) projects for public facilities like highways, water supply, hospitals and renewable power-generation plants.
According to Affin Hwang, potential beneficiaries include Gamuda Bhd, Taliworks Corp Bhd, Ekovest Bhd and IJM Corp Bhd.
“However, we gather that there are not many urban toll highway projects that are viable on a fully privatised basis (low returns),” it said.