Construction rally on LRT3 contracts
Construction stocks on the uptrend boosted by LRT3 contracts
Construction stocks rallied again yesterday in anticipation of the first round of Light Rail Transit 3 (LRT3) contracts, which are being awarded in stages beginning this month, say observers.
As at 5pm yesterday, numerous construction companies were among the top gainers on Bursa Malaysia with several counters chalking up all-time highs.
George Kent (M) Bhd, which is one of the project delivery partners (PDPs) for the LRT3, closed at a new high of RM4.37, or a 19-sen increase from Tuesday. The other PDP, Malaysian Resources Corp Bhd, rose three sen to close at RM1.78, which is close to a three-year high.
“The latest rally coincided with two major factors – strong fund flows into mid-cap stocks and the expectation of an uptick in public infrastructure contracts, which will increase significantly compared to last year,” said one construction sector analyst for a research house.
It is notable that a significant portion of the recent gainers comprises mid-cap companies, which stand a good chance of getting a slice of the RM9bil LRT3 pie due to their prior track records.
WCT Holdings Bhd announced yesterday that it had secured an RM185.9mil contract from Prasarana Malaysia Bhd to build the Johan Setia depot and carry out associated works under the LRT3 project.
Mudajaya Group Bhd, long said to be a laggard among the high-flying construction stocks on Bursa Malaysia, rallied yesterday after announcing that it had won a RM58.3mil contract under Package PC3 of the LRT3 which links Bandar Utama in Petaling Jaya to Johan Setia in Klang.
The stock rose 11 sen to close at RM1.21 a share, the highest since August last year.
Other potential contenders continue to see trading interest in their shares. Among the mid-cap and small-cap players in this space are Gadang Holdings Bhd, Fajarbaru Builder Group Bhd, TRC Synergy Bhd, Crest Builder Holdings Bhd and TSR Capital Bhd, among others.
The KL Construction Index, a sector benchmark, is up by 16% this year and is currently trading at its highest level in nearly 20 years. It is notable that the index is significantly higher than at any point over the past four years when numerous contracts under the RM21bil mass rapid transit project were handed out.
“We expect news flow on the construction sector to pick up pace in the next two quarters. For the LRT3, we expect the tenders to be competitive with an average package size of 4 km per contract,” AllianceDBS Research said in a note yesterday.
Some 96 contractors are eligible to secure the LRT3 jobs following a pre-qualification exercise by Prasarana last year. About 45% of the contracts will be awarded to bumiputra-controlled companies through the “carve and compete” concept.
According to Prasarana, the main work packages would then be sub-divided into 120 smaller contracts for the benefit of smaller-scale contractors. Overall, the LRT3 spans 37 km and includes 26 stations.
In January, Prasarana president and chief executive officer Datuk Seri Azmi Abdul Aziz said the major contracts for the LRT3 project would be awarded in May. However, plans seem to have accelerated following Mudajaya’s job win this week.
The contracts to be dished out include nine packages for the construction of bridges and buildings for parking facilities, one for underground tunnels, two for car depots, three for bus depots, and works systems as well as the supply of construction materials.