The SRS Consortium, led by Gamuda Berhad, may start reclamation work on one of the three islands included in the Penang South Islands (PSI) project as early as November of this year, once clearances are granted, according to KAF Research.

The research house said that despite the High Court rejecting its request to file a judicial review to reinstate PSI late last month, the state government remains steadfast in forging ahead with the project, which is essential to funding several infrastructure projects under the larger Penang Transport Master Plan (PTMP).

"Above everything else, the state government can still count on the fresh EIA (Environmental Impact Assessment) submission to continue with PSI. Despite the legal setback, we understand that a revised and more comprehensive EIA has already been submitted, followed by a public display from May 20 to June 18," the firm said in a note Sept 15.

Three new islands are being created as part of the PSI, a large reclamation project off the southern shore of Penang island. The three islands—A, B, and C—off the coastal settlement of Permatang Damar Laut will have a combined land area of 1,821 hectares (ha).

The largest island, known as Silicon island (island A), would measure 930 ha. Island B will be next, at 566 ha, and island C, at 323 ha.

The PSI project was first introduced in 2015 as the funding module for the RM46 billion PTMP. SRS Consortium was appointed as the project delivery partner (PDP) on August 14, 2015.

The PTMP contained recommendations for roads, LRT, monorails, bus rapid transit, trams, ferries, and water taxis, with PSI as the financial module.

The majority of the space on the three islands will be used for residential purposes (31.2 per cent), covering 567 ha, and industrial lots (23.2 per cent), covering 422 ha, according to the EIA assessment.

The remaining area will be divided among a mixed-use development (13.9 per cent), open spaces (11.4 per cent), institutions (6.5 per cent), 118 ha of commercial usage (4.8 per cent), and 252 ha of mixed-use development (13.9 per cent).

According to KAF Research, Island A has been designated to attract investors looking for industrial land in Penang.

"Penang island is running out of land to support its vibrant E&E sector. Our channel checks indicate that plans may be afoot to develop the third phase of Batu Kawan's industrial estate, even as the Kepala Batas Industrial Park (located north of Seberang Prai) is slated to be ready by the second half of 2022.

"We, therefore, believe that Island A has what it takes to carve its name as a prime, ESG-compliant industrial park. Separately, a 300-acre plot of land along Island A (about a quarter of Island A's Phase 1 land area) that was originally set aside from the expansion of Penang International Airport's (PIA) runway, has been done away with.

"FMT reported that Malaysia Airports had other plans, prompting a change in land use, which would now accommodate the depot station for the proposed Bayan Lepas LRT line. From a strategic standpoint, Gamuda regards PSI as a calculated move with funding backstop," the research firm said.

According to KAF Research, work on Islands B and C would be on hold until Silicon Island is completely reclaimed

Gamuda owns 60 per cent of SRS Consortium, along with Penang-based Loh Phoy Yen Holdings Sdn Bhd (20 per cent) and Ideal Property Development Sdn Bhd (20 per cent).

Through SRS Consortium Gamuda is collaborating with the state government under a 70:30 joint venture to construct Phase 1, which accounts for around 52 per cent of Island A's landbank, with an anticipated peak funding of RM4 billion in Year 4.

According to KAF Research, Island A gives Gamuda an immediate order book accretion of RM5 billion, with a total investment expenditure of RM6 to RM7 billion.

"With RM5 billion worth of jobs that it can readily tap on, we reiterate our view that Gamuda remains as the prime beneficiary of PTMP if Island A takes off. It is one of several key infrastructure projects that Gamuda is counting on to meet its ambitious replenishment target of RM25 billion over the financial years 2022 and 2023.

"Further out, it could provide fresh impetus to the prospects of other components within PTMP that is under SRS Consortium's watch. This would include surplus from future land sales, or even property and industrial development opportunities within Penang, for which Gamuda Land has yet to have exposure with," the firm said.