News: ECRL Review: RM130 Million Worth Of Contracts May Be Cancelled, Suspended

Jul 10, 2018

With the current review of mega projects expected to affect the award of new contracts in the next six to 12 months, research arm of Affin Hwang Investment Bank Bhd (Affin Hwang Capital) has slashed its earnings estimates for HSS Engineers Bhd (HEB).

This comes as HEB faces the risk of having RM130.4 million worth of contracts being cancelled or suspended, depending on the outcome of the ECRL project review, reported Borneo Post.

In fact, China Communications Construction Co Ltd, the project’s main contractor, had been ordered to suspend all works on the ECRL project.

The mega infrastructure project had been placed under review after it was found that its final cost had ballooned from RM55 billion to RM81 billion.

The Finance Ministry had said on Tuesday (3 July) that the project cost would have to be reduced significantly for the project to become financially viable.

Finance Minister Liam Guang Eng also revealed that the Selangor government had also objected to the completion of the Gombak-Port Klang portion of the rail link.

Affin Hwang Capital reckons that the cost could be reduced to around RM40 billion if the project reverts back to its original plan of having single track lines running from Gombak, Kuala Lumpur, Kota Bahru and Kelantan.

With this, it believes that it would be “challenging for HEB to secure new contracts in FY2018”.

“We cut our FY2018, 2019, and 2020E new contract assumptions to RM1, RM150, RM250 million from RM94, RM200, and RM350 million previously.”

“We also remove earnings contribution from the RM104 million remaining contract value for the ECRL, given the potential suspension of work, in our new FY2018 to FY2020E earnings per share (EPS) forecasts…This leads to a cut in EPS by four to 26 percent in FY2018 and 2020E,” said the research arm.

Despite the cut in EPS, Affin Hwang Capital still believed that HEB’s current FY2018E price earnings ratio of 13-fold remains undemanding. It then reiterated its buy call on HEB stock with a target price of RM0.78 per share.

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Shaiful Safar
Real Estate Negotiator
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True Vest Property Consultants Sdn. Bhd.
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