HLIB Research said the construction sector valuations at current levels provided room for upside.
PETALING JAYA: The construction sector will likely see a further acceleration in awards in the second half (2H) of this year, driven by long-delayed big-ticket infrastructure projects.
After robust job flows in 1H24, the infrastructure projects in 2H24 would help lift contract awards to more than RM40bil this year, the highest since 2016, according to Hong Leong Investment Bank (HLIB) Research’s data.
The brokerage in its report noted that domestic contract awards totalled RM20.7bil, up 41% year-on-year, with private sector projects accounting for up to 87% of the award value, led by data centre contracts.
In 2023, the value of contract awards totalled RM21.8bil.
HLIB Research maintained its “overweight” recommendation on the sector, citing structural data centre and Johor reinvigoration themes.
It said in addition to data centre-led flows from the private sector, 2H24 could see the award of sizeable public infrastructure projects.
Among these would likely be the Penang light rail transit project (RM10bil), Pan Borneo Highway Sabah Phase (RM14bil), Sabah-Sarawak Link Road Phase 2 (RM7.4bil), Northern Coastal Sarawak road, Sabah hydro and water, Penang airport expansion and critical flood mitigation projects.
“We are expecting rollout of development expenditure and off-balance sheet funded projects in the 2H24 after delays in 1H24 which comes part and parcel with government projects,” HLIB Research said.
“We believe the wave of investments into the country will continue to encourage development spending on critical enabling infrastructure like ports, airports, water infra, highways and railways,” it added.
HLIB Research pointed out that the upcoming Johor Baru-Singapore special economic zone could spell more opportunities for the construction sector over the longer term, while potential Johor elevated automated rapid transit system could spur stronger sector sentiment.
“We view the latter as a critical and urgent dispersal system considering Johor Baru-Singapore rapid transit system (RTS) will be up for completion in 2026 and increasing economic linkages will only amplify need for high capacity connectivity infra to compliment the RTS link,” it said.
HLIB Research said the construction sector valuations at current levels provided room for upside.
“The data centre and Johor reinvigoration themes still has room to play out. Investors’ preference for the picks and shovels trade for the data centre boom should continue to drive sector multiple rerating,” it said.
HLIB Research listed Gamuda Bhd
and Sunway Construction Group Bhd.
In the second quarter (2Q) of 2024, the construction sector saw award of RM13.8bil in contract value, making it the second highest quarterly flow since 1Q09 (commencement of its database compilation), only behind the record high achieved in 1Q16, when contract awards were driven by the Mass Rapid Transit underground, and Pan Borneo Highway Sarawak portion.
“This is a significant achievement in our view considering it was delivered without much infrastructure pump priming.
“This time around, we saw tangible impact from bullish property developer sentiment as well as data centre contracts (RM4bil in 2Q24) which were instrumental towards the stronger job stream.
“Even if we deflate 2Q24 value by 15% to 25% to account for post-Covid cost inflation, the quarterly figure will still rank towards the higher end,” the research house added.
