Potential revival of HSR seen as catalyst for YTL

10 Apr 2019 / 20:14 H.

PETALING JAYA: A potential revival of the Kuala Lumpur-Singapore High Speed Rail (HSR) project is a catalyst for YTL Corp Bhd’s construction division, according to MIDF Research.

It said construction currently accounts for 3% of YTL’s pretax earnings, while its construction earnings has seen progressive improvement in recent quarters given progress in the Gemas-Johor Baru double tracking project.

It was reported that Malaysia was exploring proposals to reduce cost of the HSR project, which could mean a potential revival of the project.

YTL was previously appointed as one of two project delivery partners (PDP) for the now deferred HSR project. YTL submitted a bid for the role via a 70:30 joint venture with TH Properties Sdn Bhd (YTL-THP).

The other consortium appointed for the PDP role previously was Malaysian Resources Corp Bhd-Gamuda Bhd (50:50). YTL-THP was selected for the Southern portion of the alignment (Johor portion) and MRCB-Gamuda for the Northern portion (KL to state border of Malacca-Johor).

Moreover, previously reported contenders for the now deferred HSR project were Gamuda, IJM and Naza’s respective consortiums.

“A drag however, comes from weak Power Seraya performance given the continued overcapacity situation in Singapore power generation. Hyflux’s woes could be a blessing in disguise as it could mean the elimination of excess capacity should there be a dismantling gas supply agreements to Hyflux’s plants as part of its restructuring, if any. Other than Singapore power, there continues to be concerns surrounding the 1Bestari project, expected to expire mid-2019, which will be re-tendered out,“ MIDF cautioned.

However, the research house said YTL is backed by a solid track record given involvement in the construction and operation of the RM2.4 billion Express Rail Link project which was also one of the cheapest that has been rolled out nearly two decades ago at just RM42 million/km.

YTL’s order book is estimated at RM8 billion comprising mainly the Gemas-Johor Baru double tracking project which was not impacted by the Pakatan Harapan government’s review of infrastructure projects in the past eight months.

The construction of YTL Power’s Tanjung Jati coal power plant in Indonesia was supposed to add an estimated RM4 billion, but progress on the financial close of this project has been delayed, presumably given the upcoming Indonesian elections.

MIDF maintained its “neutral” call on YTL for the meantime at an unchanged target price of RM1.15 a share. Key catalysts for a review of its call include progress in Tg Jati power plant project, improvement in Seraya earnings, and potential revival of the HSR project.

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