• Still OVERWEIGHT. According to an article by Free Malaysia Today, the Johor State Government is considering building an elevated autonomous rapid transit (EART) system instead of the initially proposed Johor-Bahru Light Rail Transit (JB LRT). Main reason: The lower cost of the EART estimated at MYR7bn vs the JB LRT’s estimated price tag of MYR16.7bn. Additionally, the Johor EART would have a shorter construction timeline vs the JB LRT, enabling EART services to coincide with commencement of the Johor Bahru Rapid Transit System (JB RTS) Link in 2027.

• We envisage such plans to be strategic in order to ensure the seamless connectivity in Johor between the various mode of transports, ie Johor EART and JB RTS Link. A study is currently being conducted (expected to be completed by August), which will be followed by a presentation to the Cabinet. It is highly likely, in our view, that the latter gives the greenlight, as the Johor EART is more cost- and time-effective vis-à-vis the JB LRT.

• How different is the EART from the Iskandar Rapid Transit (IRT)? Both are reported to have three lines – Iskandar Puteri, Skudai, and Tebrau – with the main difference lying in the Skudai Line, which is 8km shorter for the Johor EART than the IRT (Figures 1 and 2). The difference in costs for the Johor EART (MYR7bn) and IRT (MYR3.1bn) could be potentially due to the higher portion of elevated sections for the former to mitigate traffic congestion. According to Johor’s Transport, Infrastructure and Communications State Executive Councillor Mohamad Fazli Mohamad Salleh, the state government believes the IRT is incapable of handling long-term congestion problems, as 25% (or 13.8km) of its alignment will be on normal roads.

• While we view the EART leading to smaller contract awards, given its lower cost vs the JB LRT, contractors may still benefit commendably from this project. In comparison with the IRT, we believe the Johor EART system could likely have a higher portion of elevated sections as mentioned earlier, which explains the higher MYR7bn cost for the Johor EART vs IRT’s MYR3.1bn overall cost (Figure 1). With a possibly higher concentration of elevated portions under the Johor EART, opportunities may arise for contractors with track records for building or supplying components related to viaducts.

• In our view, Sunway Construction stands to be the potential beneficiary of the Johor EART project, as it was involved in the elevated Bus Rapid Transit (BRT) Sunway Line (5.4km) – Malaysia’s first BRT project in 2018 – for a contract value of MYR452m. This BRT line was implemented under the public-private partnership programme between Prasarana Malaysia and Sunway (SWB MK, BUY, TP: MYR3.53). Another potential beneficiary is HSS Engineers (HSS MK, NR), as the group bagged a MYR71m contract from the Iskandar Region Development Authority to provide detailed design & construction supervision services for the first Bus BRT in Johor, ie the IRT.

• Key risk: Delay or cancellations for both the Johor EART and JB LRT.

Source: RHB Securities Research - 15 May 2024