All tracks in Aug lead to MRT 3 tenders
? We outline a detailed estimate of RM31bn MRT 3 civil works tender structure
and civil works value following our checks post-tender launch by MRT Corp.
? Criteria and track record point to Gamuda, IJM Corp and HSS Engineering as
potential tier 1 and PMC frontrunners among companies under coverage.
? Retain Neutral sector rating; Gamuda remains as our top MRT 3 pick.
Largest contract since the pandemic kicks off tender launch
The much-anticipated tender phase for larger-value packages of the RM31bn MRT 3
(Circle Line) contract w as launched in late-May 22 for the three main civil w orks scopes.
We outline a detailed estimate of the construction cost per package and the civil w orks
content for each package. The main difference betw een the MRT 3’s bidding structure this
time around vs. MRT 2 (Putrajaya Line, 80% completed) is the absence of a project delivery
partner (PDP) and creation of three main turnkey contractors/JV to lead the implementat ion
of each of the three tier 1 civil w orks packages. Another key difference is that all tender
submissions for the three tier 1 civil w orks are required to include a private sector funding
scheme/proposal for the first 2 years of construction (CY23-24F). Based on our
understanding of the MRT 3 funding plans, government-funded deferred payment scheme
w ould commence from year 3 to project completion in year 8. The Ministry of Finance
(MOF) had earlier said it w ill raise as much as RM50bn in bonds for this purpose.
Consortium/JV requirements maximise local rail content
In the coming months, all eyes w ould be on the MRT 3 tender rounds, targeted for tender
submission in Aug 22 and contract aw ards by end-CY22F, at the earliest. Based on our
cross checks w ith various contractors, w e gather that partnership/JV w ith bumiputera
contractor(s) is a requirement (at least 20-31% stake) for all three packages (CMC301,
302, 303), w hile the largest package w ith the longest tunneling scope (CMC 303) has an
option of the inclusion a maximum of 49% equity stake by a foreign contractor, in addition
to the minimum 20% stake by a bumiputera contractor (Fig 4).
Gamuda, IJM Corp and HSS Engineers as potential frontrunners
MRT 3’s rail track record criteria (Fig 5) support our view that among the rail contractors
under our coverage, Gamuda and IJM Corp are potential frontrunners for the tier 1
packages. Gamuda’s rail and tunnelling credentials from MRT 1 and 2 (via MMC-Ga muda
JV; 50:50) are its strong points over other bidders of CMC303 (est. RM13bn). For IJM Corp,
the group’s targeted RM3bn w orth of new contracts in FY3/23F includes larger-value rail
contracts and could be a viable candidate for package CMC302 in our view (est. RM14.7bn)
given its extensive rail experience in aboveground scopes. As for HSS Engineers, it has
secured a RM11.3m preliminary consultancy service for MRT 3 and could clinch higher
value Project Management Consultancy (PMC) packages – it secured RM159m contracts
from MRT 2 (Putrajaya Line) and RM290m contracts before MRT 3 w as cancelled in 2018.
Maintain Neutral sector rating
Maintain Neutral sector rating, w ith a preference for Gamuda, IJM Corp and HSS on the
MRT 3 theme. Key risks: uncertainties over other rail jobs i.e. HSR, higher building material
prices, delays in MRT 3 execution timeline and election risks on job rollout. Gamuda is our
top pick for higher value tunneling w orks, bringing it closer to its target of doubling its
RM10.4bn order book (highest among the big caps) by FY7/23F.