Scrapping HSR a Wise Move, Time will tell

The new government’s final decision to axe the Kuala Lumpur-Singapore High Speed Rail (HSR) appears to be a smart move as the project’s high cost is likely to exceed its potential benefits, reported the Sun Daily.

“This project can take longer than envisaged to break even given the stiff competition with other modes of connectivity such as road and air. Much will depend on ticket pricing and ridership,” said AmResearch on Wednesday (30 May).

While there will be some negative consequence for terminating the HSR, the research house believes the negative effects are not tremendous.

For instance, the penalty of up to RM500 million to cancel the project is only about 0.45 percent of its RM110 billion total cost, which appears manageable.

“The move has given some breathing space on savings, especially with the high public debt at RM1.09 trillion or 80.3 percent of the gross domestic product (GDP),” it noted.

However, the axing of the HSR and the MRT3 project or Circle Line have significantly affected the share prices of Malaysia-listed construction companies, resulting in a collective decline of 10.87 percent or 24.42 points.

For instance, Gamuda’s stock price slumped 23 percent to RM3.18, that for Malaysian Resources Corp Bhd (MRCB) fell 16.8 percent to 57 sen, while YTL Corp’s slid 8.8 percent to 93 sen.

Earlier this month, a consortium consisting of Gamuda and MRCB have been appointed to build the civil infrastructure works of the HSR’s northern domestic portion, while a joint venture between YTL and THP bagged the southern segment.

AmResearch said the outlook of the local construction industry appears lacklustre as the new government reviews large-scale projects to trim down debt.

“Apart from the KL-Singapore HSR, we believe more mega projects could potentially be deferred, scaled down or cancelled.”

Furthermore, it said, the implementation of a more transparent public bidding system is expected to lower the profit margins of construction firms.

“Not helping either, are the prolonged downturn in the local property market that weighs on Gamuda’s property division, coupled with the uncertainty arising from the potential expropriation of Gamuda’s toll road and water concessions,” added the research house.

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