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Contract awards related to rail works continue to boost the construction sector with more to come.
This week alone, some RM4bil worth of Light Rail Transit Line 3 (LRT3) contracts were dished out to three companies, which brings to a total of RM7.4bil worth of LRT3 contracts awarded so far.
CIMB Research said it understood that Prasarana Malaysia Bhd, the project owner of LRT3, still has seven major civil work packages to be awarded for LRT3, which is expected to be concluded by year-end.
Besides the recently launched East Coast Railway Link (ECRL), the next big series of awards are said to be coming from Mass Rapid Transit 3 (MRT3) in the Klang Valley.
It was recently reported that the Government may consider expediting the construction of MRT3 (Circle Line).
This proposed rail link is estimated to cost RM35bil-RM40bil and expected to be completed two years earlier than the original 2027 target, CIMB Research said in a report.
MRT3, which is being touted as the rail story for 2018, has not been granted Cabinet approval.
CIMB Research said it understood that this approval is targeted to be achieved by mid next year. It will then take at least another six months from Cabinet approval to project awards.
So, it is little surprise that the construction sector index on Bursa Malaysia has been on the uptrend, having risen 15.39% as compared to the broad market’s 7.45%.
A key question though is whether these contracts will translate into hefty profits for the winners.
One concern is that construction companies don’t necessarily earn as much as investors hope they do because it is not known the actual cost they have incurred in securing these projects. Large players also have a much higher cost base.
Macquarie Research said that based on its checks with the contract winners, it expected LRT3 to bring a gross margin of between 8% and 11%.
This article first appeared on www.thestar.com.my
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