- Looking ahead, HLIB expects further sectoral growth in 2025, with major projects such as the RM8.3 billion Penang Light Rail Transit (LRT) Segment 1, and subcontract packages worth RM3 billion to RM4 billion.
KUALA LUMPUR (Jan 16): The construction sector is expected to see another decent year in 2025, after domestic contract awards hit a new record last year, according to Hong Leong Investment Bank (HLIB) Research.
As such, the house maintained its 'overweight' call on the sector, adding that valuations at current levels still provide room for upside.
"[We are] anticipating another year of sustained job flows anchored by conventional DCs and AI-DCs (artificial intelligence-driven data centres), infrastructure roll-outs, and buoyant private-sector sentiment," it said in a note on Thursday.
HLIB said total contracts awarded last year totalled RM44.2 billion, marking the highest sum since 2016 and reflecting a 103% year-on-year (y-o-y) increase.
This surge was attributed to accelerated progress in Corporate Green Power Programme projects, along with steady project flows supported by conventional and AI-powered data centres, said HLIB.
“The recent release of the interim final rule on AI hardware by the Biden administration could potentially dent the AI-DC pipeline (assuming that validated end-user status is granted),” the house added.
Despite this, HLIB remains optimistic that conventional DC pipelines will remain unaffected.
In the fourth quarter of 2024, domestic contract awards reached RM12.3 billion, a 156% increase y-o-y, fuelled by infrastructure projects and resurgent private-sector activity, particularly in Johor.
Contributing factors included strong property developer sentiment and a renewed focus on residential and commercial developments, the house noted.
Key wins included Gamuda Bhd (KL:GAMUDA)-Conlay's RM3.05 billion Ulu Padas hydro project, and Pan Borneo Highway packages awarded to Ireka Corporation Bhd (KL:IREKA) and TCS Holdings Group Bhd (KL:TCS).
Overseas, foreign ventures also delivered results, led by the Gamuda-MiTAC-Dong Pi joint venture’s RM4.3 billion Xizhi Donghu Mass Rapid Transit (MRT) project in Taiwan, and a RM1.8 billion solar engineering, procurement and construction contract in Australia, said HLIB.
Looking ahead, HLIB expects further sectoral growth in 2025, with major projects such as the RM8.3 billion Penang Light Rail Transit (LRT) Segment 1, and subcontract packages worth RM3 billion to RM4 billion.
Other notable upcoming projects include the RM5 billion Penang-Perak water project.
HLIB maintained its 'overweight' call on the sector, with Gamuda as its top pick, initiating a ‘buy’ rating and a target price of RM5.50. Other notable ‘buy’ recommendations include IJM Corporation Bhd (KL:IJM), Sunway Construction Group Bhd (KL:SUNCON), and Kimlun Corporation Bhd (KL:KIMLUN).
HLIB anticipates progress in major infrastructure projects, such as the Penang airport expansion and Johor's LRT/autonomous rail transit (ART), while the MRT3 and Kuala Lumpur-Singapore high-speed rail (HSR) projects are not expected to advance to the award stage until after 2025.
Development in Sabah and Sarawak continues, with selective benefits for construction stocks, HLIB added.
The RM9 billion private finance initiative (PFI) projects announced in Budget 2025 offer opportunities for well-capitalised contractors, though not all will commence in 2025, the house said.
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