PETALING JAYA: Malaysia is set to ramp up its public infrastructure spending from the fourth quarter of 2024 (4Q24) onwards.This would start with projects such as the Penang Light Rail Transit (LRT) Penang International Airport expansion and Pan Borneo Sabah, according to CIMB Research.
An additional boost may come from a step-up in infrastructure spending in East Malaysia, considering that Sabah and Sarawak could hold their elections in 2025 and 2026, respectively.
Looking ahead, CIMB Research said tender momentum will be supported by a rising number of public-private partnership (PPP) projects for high-tech plants, highways, renewable energy and climate change projects.
This is in addition to the Johor-Singapore Special Economic Zone (JS-SEZ).
The formalisation of the JS-SEZ framework, expected by January 2025, should spur new order book prospects in Johor and provide fresh impetus for the proposed KL–Singapore high-speed rail and Johor LRT or autonomous rapid transit projects.
PPP projects will play a key role in the re-acceleration of larger public infrastructure jobs in Malaysia.
Through PPP Master Plan 2030, the government aims to generate RM78bil worth of investments across 17 key initiatives by 2030.
With the government’s renewed interest in pushing infrastructure projects, this has provided support to construction activities in Malaysia.
Between January and October 2024, the value of construction projects awarded by the public and private sectors has surged to RM186bil.
At RM186bil, it is the highest level since 2016.
It has also surpassed the total value registered in the entire 2023 at RM153bil.
The construction sector’s order book-to-revenue cover also remains relatively healthy at 2.9 times, excluding Malaysian Resources Corp Bhd’s long-term Bukit Jalil Sentral contract.
“As a result, we expect contract momentum to remain robust and the sector’s core earnings to grow 25.2% year-on-year in 2025.
“The rollout of new infrastructure projects should kick-start a stronger re-rating for the sector.
“On the other hand, new foreign worker policies (such as Employees Provident Fund contributions and multi-tier worker levies) could exert renewed margin pressure on Malaysian contractors in the near term.”
Commenting on the third-quarter earnings season, CIMB Research said the construction sector reported another solid performance in 3Q24.
This was despite the renewed cost pressures in the sector.
The results of four companies under its coverage were in line with expectations, while one outperformed.
“We retain Gamuda Bhd
and IJM Corp Bhd as our top large-cap picks, while Malaysian Resources Corp Bhd and Muhibbah Engineering (M) Bhd are our key alpha plays,” said CIMB Research.
