PETALING JAYA: A robust pipeline of infrastructure and data centres, coupled with a starting of delayed projects will continue supporting the uptrend for the construction sector in 2025.
According to Kenanga Research, 2024 was a relatively slow year for the rollout of projects.
However, data centres are expected to drive growth in private-sector projects this year, as tech giants have announced significant investments into the sector in Malaysia.
Report last year stated that there were 7,200 megawatts (MW) of data centre capacity planned in the country, with 4,700MW secured already.
“We believe large-cap builders such as Gamuda Bhd
, IJM Corp Bhd and Sunway Construction Group Bhd (Suncon) hold a competitive edge due to their industrial-building-system solutions, which enable faster project completion.
“Data centre projects are typically fast-tracked and demand shorter construction periods, a factor that naturally commands higher profit margins,” the research house said.
Additionally, construction for the Mass Rapid Transit 3 project in the Klang Valley is expected to begin in 2026 with the entire line anticipated to be fully operational by 2032.
The research house said if this timeline materialises, 2025 could surpass 2016’s peak for contract awards.
“Other major projects in the pipeline include the Penang Airport expansion, the second phases of the Pan Borneo Highway and Sabah-Sarawak Link Road and the Subang Airport redevelopment plan,” it said.
It added a total of RM185.1bil in main-contractor construction contracts were awarded up to end-November 2024, surpassing the RM152.8bil total value of contracts awarded in 2023.
“We maintain our three-year average annual contract-awards assumption of RM180bil over 2024 to 2026, which is 11% growth against the previous upcycle average of RM161bil in 2016 to 2018,” the research house said.
Kenanga Research said Gamuda Bhd was likely to achieve an end-2024 outstanding order book of RM31.8bil, while setting an ambitious outstanding order book target of RM40bil to RM45bil for 2025.
The research house said it was maintaining an “overweight” call on the sector, anchored by Gamuda for large caps, while it also anticipated a better risk-reward profile for mid to small-cap builders such as Kimlun Corp Bhd and WCT Holdings Bhd.
Meanwhile, RHB Research said, alongside Gamuda and Suncon, it also had Kerjaya Prospek Group Bhd as one of its top picks.
The research house said domestic job-flow trends were expected to increase significantly this year, with the total value of projects worth an estimated RM199bil being the highest seen in eight years.
“This is mainly premised on the Works Ministry’s projection of construction spending to be worth RM200bil in 2025, with RM88bil from the government’s budget, RM32bil estimated to be from projects by government-linked companies and the remaining RM80bil anticipated to come from the private sector,” the research house said.
It added that domestic water-related infrastructure would be another key theme this year, with approval from the Energy Transition and Water Transformation Ministry for 43 high-priority flood mitigation projects worth RM10.5bil.
“In the same vein, a budget of RM2.5bil had been approved by the Cabinet for the National Non-Revenue Water programme to begin from 2025 to 2030,” RHB Research said.
It also said that the Bursa Malaysia Construction Index is trading at a forward price-earnings ratio of 18.2 times.
“While it is above the 15 to 16 times observed during the 2017 construction upcycle – we believe that the sector is not ripe for substantial profit-taking, in light of continuing news flows about initiatives such as the Johor-Singapore Special Economic Zone and public-private partnership projects,” it noted.
The research house said potential catalysts for the sector could include stronger foreign direct inflows this year, as well as the implementation of the Johor Baru LRT or the Autonomous Rapid Transit system which has yet to see any new updates.
RHB Research said it was maintaining an “overweight” call on the sector.
