Our government has given out soundbites that offered a more conciliatory stance towards restarting ECRL. For those who have missed the large re-rating upwards of oil & gas plays, these stocks under ECRL theme may be worth doing more research into.
The mini bull run seems to have gotten some legs, thanks to the upcoming Samurai bond and PM's visit to China in April.
The last two by-elections, which the rakyat handed a sound thumping to the ruling government, was actually a good thing. To me, they are not really racially based swings but more dissatisfaction from the general populace over the "excessive handbraking in the real economy" by the ruling government.
While we want to eradicate corruption, primarily by cronies of the previous government, the collateral damage has been excessive to bystanders. Coming at a time which coincided with the US-China trade war spat just made things worse over the last 12 months.
Just imagine the number of subcontractors and workers linked to the HSR and ECRL, what were they doing for the last 12 months. The stock market mostly edged lower for most of the last 12 months. The velocity of money almost ground to a halt. Coupled by a weakish palm oil price regime and gross overbuilding of properties - we have a recipe for a sluggish economic period to put it kindly.
The ECRL has merits. Not just in revitalizing domestic economic activity to Eastern block of the peninsula, but for paving access and logistics for goods and services which have a higher multiplier effect.
Why Restarting ECRL Is Probable: Our side has apparently paid 39% of the supposed total cost already for just 13% work done. Whether some of the sums were "diverted" or "misused" is up for conjecture for now.
Now let's use RM55bn as the benchmark, 39% = RM21.45bn. That figure is probably not retrievable. It is likely that the Chinese side has agreed to finish the project for something a lot less than RM55bn. Judging from the statements issued thus far, a figure of RM33bn-36bn seems plausible. The pragmatic thing to do, since we have paid RM21.45bn is to get the project finished. Plus it is not wise to further irk China as a major trading partner.
ECRL - If restarted, will be at a much much lower price. Thus the main con and even sub cons should only be eyeing much tighter margins.
Beneficiaries based on networking: Those companies who were in the front running for the ECRL scraps before, may no longer be in vogue IF they relied upon or seemed to rely extensively on their connections to the past government. I shouldn't name names but you should know.
Beneficiaries based on need supplies: Steel - you can't get away from that. You can't be silly enough to import. Most steel players had a rough past 6 months thanks to the US-China trade war spat.
I am benchmarking their stock price to their April/May 2018 prices. We may expect a reversal back close to those April/May 2018 prices should the ECRL be restarted. Using 75% of the April/May 2018 prices may be a sensible trading target.
Current Price Apr/May 2018 price
LION INDUSTRIES 0.58 1.05
MASTEEL 0.48 0.80
ANNJOO 1.60 2.90
Lafarge Malaysia has showed buying interest of late, possibly on the back of ECRL theme as well. Trading around RM2.30, its April/May 2018 price was around RM4.20.
Possible the biggest beneficiary, not that they asked or lobbied for it I think, should be AZRB. It may not be the best-run company or most aggressive company out there, but the stars are aligning just for them. The other big landowners in that area will be Pasdec but owing to nature of its shareholders, its prospects will not be as clear as AZRB.
AZRB Strong Points:
- has a RM1.55bn contract to build an expressway from Gombak to Kajang tagged with a concession for the tollway for 50 years
- jointly awarded the RM1.7bn MRT line from Sg Buloh to Kajang with IJM
- Class 1 Bumi contractor
- 50 acres quarry land in Terengganu
- 67 acres of development land in Marang, Terengganu
- 11 acres in Bentong
- 30 acres of commercial land in Kuantan
The two oil & gas marine supply bases of AZRB at Tok Bali and Kemasik are gems.
Kemasik - RAPID refinery is there and needs more than 50m barrels of crude yearly for its refinery. AZRB has been extended another 5 years for sale of marine diesel oil. AZRB also has around 4 acres of land in Kemasik.
Tok Bali - It is the intention for Petronas to develop this into a petrochemical hub. AZRB is already in a joint venture with Petronas for marine oil supply and other supporting industries.
Not a recommendation to buy or sell but information for discussion and further research if you believe there is a good likelihood of ECRL being restarted.