Baghdad Metro Is Back On Track - What It Means for Malaysia's HSS Engineers

Imagine a city of almost 10 million people, notorious traffic congestion, and virtually no modern public transport system. That is Baghdad today. To change it, the Iraqi government is planning one of the largest infrastructure projects in the Middle East - the Baghdad Metro project, worth around USD18 billion.

Why should Malaysians care? A company listed on Bursa Malaysia, HSS Engineers Berhad, holds a consultancy contract worth RM1.49 billion in this mega project - the largest overseas contract in the company's history. After nearly two years of ups and downs, the latest news in July 2026 shows the first payments are finally flowing.

In this article, we break down what the Baghdad Metro project actually is, why it was delayed, what has changed recently, and most importantly - what it means for Bursa Malaysia investors.

What Is the Baghdad Metro Project?

The Baghdad Metro project is a plan to build a 148-kilometre automated, driverless metro network in the Iraqi capital. According to Metro Rail Today, the network will consist of 7 main lines with 64 stations, covering roughly 85% of Baghdad, with a target capacity of up to 5 million passengers per day.

The estimated total cost is between USD17.5 billion and USD18 billion - more than RM75 billion. For comparison, that is far larger than the MRT3 project in Kuala Lumpur, which is estimated at around RM31 billion.

Why is Iraq willing to spend this much? After decades of conflict, Iraq's economy is heavily dependent on oil revenue, and its government wants to rebuild basic infrastructure. Baghdad is among the most congested cities in the region, and its population has grown from 3 million to nearly 10 million over recent decades. A metro is the most logical long-term solution.

The RM1.49 Billion Contract: Malaysia's Role

In July 2024, HSS Engineers, through a 50:50 joint venture with its long-time UAE partner Consultant HSS LLC, won a project management consultancy (PMC) and construction supervision contract worth USD315.89 million, or about RM1.49 billion, as reported by The Star.

Their scope of work includes design review, overseeing the contractor pre-qualification process, auditing survey works, reviewing project performance specifications, and construction supervision. The PMC element is worth 0.6% of the overall construction cost, while the construction supervision element is worth 1.2%.

This is no small contract. According to Bernama, it is the largest overseas contract ever secured by HSS Engineers - an engineering firm better known for consultancy work on domestic infrastructure projects such as the MRT, LRT and highways in Malaysia.

HSS's share of the PMC contract value is estimated at around USD52.5 million (over RM220 million) - a significant sum relative to the company's size.

Ups and Downs: Elections, Redesign & the PPP Model

Like most megaprojects in countries recovering from conflict, the Baghdad Metro's journey has not been smooth. After the initial construction contract was awarded to a French-Spanish-Turkish consortium in 2024 with financing backed by Deutsche Bank, the project hit several major roadblocks.

First, Iraq's parliamentary elections in November 2025 temporarily stalled progress - the new government needed to review the country's fiscal commitments. Second, questions emerged over the financing structure. The head of the Iraq Development Fund (IDF), one of the project's principal financiers, publicly stated that the initial tender was rushed and identified 34 fundamental issues that needed review before the project could enter the implementation phase.

Third, and most importantly, the Iraqi government decided to redesign the project. According to International Finance, the original plan's heavy reliance on underground tunnels was found to be economically unviable. The costs make it easy to see why:

• Ground-level tracks: USD20 to USD30 million per kilometre
• Elevated lines: USD50 to USD70 million per kilometre
• Underground tunnels: around USD200 million per kilometre

The new design combines all three route types based on each area's geography and congestion levels. The financing model is also shifting to a public-private partnership (PPP) with a 30-year concession - easing the pressure on Iraq's public finances. The World Bank and the European Bank for Reconstruction and Development (EBRD) have reportedly expressed interest, while Iraq has also asked the IFC to help structure the project's financing.

Why Is Iraq Switching to a PPP Model?

To understand why the financing structure changed, you need to understand Iraq's fiscal position. More than 90% of Iraqi government revenue comes from oil exports. When oil prices are high, the national budget is comfortable. When oil prices fall, megaprojects become a burden that is hard to carry. Funding an USD18 billion project entirely from public coffers is a huge risk for a country whose income swings with commodity markets.

Under a PPP model with a 30-year concession, private investors bear much of the upfront construction cost and earn their returns through metro operating revenue over the concession period. The involvement of institutions like the World Bank, EBRD and IFC also gives commercial lenders added confidence - critical for a country with Iraq's risk profile. For contract holders like HSS, a more sustainable financing structure actually reduces the long-term risk of stalled payments.

Beyond Baghdad: The Najaf-Karbala Metro Opportunity

Another development that has received less attention: the Iraqi government has also approved a Malaysian-Emirati joint venture for the Najaf-Karbala Metro project, a line connecting two holy cities that receive millions of visitors every year, especially during the Arbaeen pilgrimage season.

This shows that Malaysia's involvement in Iraq is not a one-off contract, but a growing presence in the country's rail infrastructure sector. If the Baghdad Metro project goes well, it becomes a strong track record for Malaysian companies to win more contracts across the Middle East - a region spending heavily on transport infrastructure.

Latest Developments: First Payments Start Flowing

This is the part investors care about most. After Iraq's new government approved the project's continuation in May 2026, another major development came on 8 July 2026 - the Trade Bank of Iraq issued a letter of credit for the project.

According to Business Today, this paves the way for HSS Engineers to receive an initial payment of USD0.75 million, with the full first tranche of USD5.2 million (10% of HSS's share) expected by the end of the third quarter of 2026.

Why does this matter? Because until now, HSS had been performing work without receiving cash payments from Iraq. As of the first quarter of 2026, about 21% of the contract value had been recognised in the group's earnings, but operating cash flow remained marginally negative (minus RM250,000 in 1Q26, after a RM7 million outflow in financial year 2025). The letter of credit changes that equation - work already done is now starting to convert into real cash.

For a consultancy firm running an asset-light model, cash flow is the lifeblood. This also explains why the market reacted positively to the news.

What It Means for HSS Engineers' Shares

For context, HSS Engineers' order book stood at around RM2.1 billion as of March 2026 - among the highest in the company's history - with an estimated RM600 million of it executable. The Baghdad Metro contract is the largest component of that order book.

Research firm CGS International maintains an "Add" call on the stock with a target price of 81 sen, citing two key catalysts: Baghdad Metro payments starting to flow, and progress on the MRT3 project in Malaysia, where HSS could also win consultancy work.

Beyond Iraq, HSS is targeting RM300 million in new contract wins for financial year 2026, and has already secured around RM150 million in the first seven months - including the Jeniang water transfer project, road infrastructure works, and data centre projects. Malaysia's booming data centre sector is opening up new consultancy opportunities for engineering firms like HSS.

One interesting aspect of HSS's business model: as a consultancy firm, it does not bear the cost of building materials, machinery or construction labour the way contractors do. This asset-light model means profit margins per ringgit of revenue are typically higher and more stable than construction contractors, whose margins are easily eroded by rising material costs. The main risk for a consultancy is not cost overruns, but payment collection - which is exactly why the Iraqi letter of credit issue matters so much to this stock's investment thesis.

That said, keep in mind: revenue recognition from the Iraq contract depends on payments continuing smoothly. Any new delays would hit both sentiment and cash flow.

Risks Investors Need to Weigh

Before jumping in, let us assess the risks honestly. Investing in a company with large exposure to a single overseas project carries several specific risks:

1. Geopolitical and stability risk in Iraq. Iraq remains a high-risk country politically and in terms of security. A change of government, regional tensions, or an oil price shock could affect the country's fiscal commitment to megaprojects.

2. Payment delay risk. The project's own history shows payments can be delayed for years. The letter of credit is a positive step, but subsequent tranches still need to be monitored.

3. Redesign risk. The project is being restructured into a PPP model with hybrid routes. Any major change in scope could alter the value of the consultancy work, in either direction.

4. Concentration risk. The Baghdad contract is the largest part of HSS's order book. If the project stalls, the impact on earnings projections would be material.

Rising construction costs globally are also an important backdrop - in Malaysia itself, construction costs have risen by double digits and are pressuring margins across the sector.

Lessons for Bursa Malaysia Investors

The Baghdad Metro story offers several important lessons that apply to any contract-driven stock:

First, a big contract does not mean immediate cash. Many investors get excited when a company announces a billion-ringgit contract, but forget to ask: when does the money actually come in? In HSS's case, the gap between the contract announcement (July 2024) and the first payment (July 2026) was two years. We covered this in our article on how to evaluate major contract announcements.

Second, watch cash flow, not just revenue. Accounting revenue recognition (21% of contract value) is not the same as cash in hand. The cash flow statement reveals the real picture.

Third, geographic diversification cuts both ways. Overseas contracts open new markets and potentially higher margins, but come with different country risks. Judge each exposure on its merits.

FAQ: Common Questions About the Baghdad Metro Project

What is the Baghdad Metro project?

It is a project to build a 148 km automated, driverless metro network in Baghdad, Iraq, with 7 lines and 64 stations. The estimated total cost is around USD18 billion, with a target capacity of up to 5 million passengers per day.

Which Malaysian company is involved in the Baghdad Metro?

HSS Engineers Berhad (HSSEB), an engineering consultancy listed on Bursa Malaysia, through a 50:50 joint venture with UAE-based Consultant HSS LLC. They hold the project management consultancy and construction supervision contract.

How much is HSS Engineers' contract worth in this project?

The joint venture contract is worth USD315.89 million (about RM1.49 billion). HSS's own share of the PMC contract is estimated at around USD52.5 million.

Has the Baghdad Metro project been cancelled?

No. The project was delayed and is being redesigned into a hybrid-route model with PPP financing, but Iraq's new government approved its continuation in May 2026 and a letter of credit was issued in July 2026.

When will the Baghdad Metro be completed?

There is no firm date yet as the project is being restructured. Early estimates put the construction period at around four to five years once work begins in earnest.

What are the main risks of investing in stocks exposed to this project?

Key risks include Iraq's political instability, payment delays, changes in project scope during the redesign, and concentration risk since this contract is a large part of HSS's order book.

How can I buy HSS Engineers shares?

You need a CDS account and a trading account with a Malaysian stockbroker. Once your account is active, search for the HSSEB counter on Bursa Malaysia and place your order like any other stock.

Conclusion

The Baghdad Metro project is a fascinating example of how Malaysian companies can compete globally - but also a reminder that megaprojects in high-risk countries come with ups and downs that test investors' patience. With the letter of credit issued and first payments starting to flow, HSS Engineers' biggest hurdle appears to be clearing, but execution and geopolitical risks remain relevant. As always, do your own research and assess the level of risk you can tolerate - this article is not investment advice.

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Further Reading

• Pengumuman Kontrak Besar: Cara Trade Saham Pembinaan & Tech Selepas Berita 'Contract Win'
• Saham Pembinaan: MRT3, Project Mega & Bila Construction Cycle Pulih
• RM185 Bilion Masuk Malaysia - Siapa Untung Dari Boom Data Center?
• Kos Pembinaan Naik 12.59%, 4,708 PHK: 3 Amaran Menteri Ekonomi Untuk Pelabur Bursa