Part of the proposed changes will possibly entail lowering the cost of the project, studying financing solutions, as well as assessing the impact of the Covid-19 pandemic on business travel and the airline industry. — Bernama photo
KUCHING: The construction sector is set to see pockets of growth following the governments of both Malaysia and Singapore both agreeing to resume discussions on the Kuala Lumpur–Singapore high-speed rail (HSR) project soon.
According to the Ministry of International Trade and Industry (MITI), the discussions will include some of Malaysia’s proposed changes to the commercial and technical aspects of the project.
To facilitate this, both sides have agreed to extend the deferment of the project from May 31 to Dec 31. This will be the final extension granted for the project.
Singapore’s Minister of Transport Khaw Boon Wan also said that both sides have to be convinced that any proposed changes do not undermine the original intent of the project.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) believed that part of the proposed changes will possibly entail lowering the cost of the project, studying financing solutions, as well as assessing the impact of the Covid-19 pandemic on business travel and the airline industry.
“Similar to the bilateral agreement deadline for the Johor Bahru-Singapore Rapid Transit System (RTS) Link project which has been extended to July 31, we were also expecting the HSR deadline to be deferred,” it said in a sector outlook.
“We are unsure if there will be further penalty imposed on Malaysia for the latest deferment.
“It paid S$15 million for the first deadline extension until May 31.
“If the project is completely cancelled, a hefty penalty is likely to be imposed on Malaysia.
“On a more positive side, we think that there is political will from both governments to continue with this project to stimulate the economies of both nations.
“A study by the Japan Institute of Developing Economies forecasted that the project could create annual economic benefits worth US$1.59 billion for Malaysia and US$641 million for Singapore by 2030.
“In our view, the project’s structure entailing a holistic end-to end financing, or some form of public and private financing initiative, will be key.
“This would also mean that contractors with balance sheet strength should be front runners.”
As the Covid-19 curve flattens and the nation gradually opens up the economy for more activities, researchers at Kenanga Investment Bank Bhd (Kenanga Research) believes that greater emphasis will be placed onto economic recovery plans moving forward.
“In order to avoid a downward spiral in the economy, we feel the government can focus to expedite existing projects,” it opined in a separate report.
“In times like these where every nation will be registering a higher deficit, we believe rating agencies will allow fiscal discipline to be loosened.
“Fiscal reforms can take a backseat as growth in economy should be the priority.
“Therefore, it would be an opportune time for the government to chart the course for the nation’s next mega projects.
“This will bring back some public confidence in the economy without worrying too heavily about the global perception of our fiscal status.”
Kenanga Research highlighted that he mechanics behind the construction sector works in such a way that its share price rallies tend to precede news flow.
“With contract news flows still in its infancy stage, we find it fitting to position ourselves into the sector now,” it added.
“We think late August to November 2020 would be an apt time to anticipate a rally.
“The rationale being late August would likely reflect the worst results for contractors –when MCO would be at its peak.
“With that out of the window, investors can fully focus on the goodies for Budget 2021 (to be tabled on Nov 30 to Dec 3, 2020) and the 12th Malaysian Plan (to be tabled on January 2021).
“This is all assuming Covid-19 cases remains under wraps without resurgence in infections.”