Bullish outlook for construction sector on job flows

MIDF Research reiterated its “positive” stance on the construction sector.

PETALING JAYA: The construction sector is expected to see a pick-up in job flows in the second half of this year (2H24), driven by infrastructure projects like the Penang light rail transit (LRT) and Mass Rapid Transit 3 (MRT3) in the Klang Valley.

Coupled with the strong demand for industrial buildings such as warehouses, data centres and semiconductor plants, the operating environment will likely remain favourable for the sector in Malaysia in the near term, leading to a bullish outlook.

In line with this general optimism, MIDF Research reiterated its “positive” stance on the construction sector.

The research house attributed this to a strong pipeline of development and infrastructure projects, on top of rising demand for industrial buildings.

“We expect the rollout of mega projects to be a boon to the sector and contribute to increased job flows over the coming quarters,” the research house said in a report yesterday.

MIDF Research noted that as of February 2024, a total of 1,442 projects, with a total value of RM15bil, had been awarded, markedly lower than the corresponding period last year, when 2,083 projects, with a combined value of RM19.9bil, were awarded.

“We see this as a temporary hiccup, attributed to delays in project rollouts within the pipeline, to be boosted by job flows in the likes of the Penang LRT and MRT3 contracts likely by 2H24,” it argued, adding that it did not expect any surprises for the second quarter (2Q24) of this year.

MIDF Research projected the construction sector to register growth of 5.2% year-on-year (y-o-y) this year and 5% y-o-y in 2025. In 2023, the sector grew 5.4% y-o-y.

“With the lack or rather delayed rollout of mega pump-priming projects, the construction sector is still expected to be supported by private-sector jobs and previously awarded infrastructure projects such as the Pan Borneo Highway, East Coast Rail Link, LRT3 in the Klang Valley, and the rapid transit system link in Johor,” the research house pointed out.

MIDF Research said it would not discount the possibility of another quarter of extension for the MRT3 project, after four extensions sought by MRT Corp since the middle of last year.

Over in Sabah and Sarawak, MIDF Research said development projects were picking up pace, with the Pan Borneo Highway in Sarawak nearing 98.91% completion and expected to be finished this year.

For the Sabah portion of the highway, the research house said, Phase 1A was ongoing, at 87% completion, while Phase 1B was currently in the tender process, with 19 work packages, of which some awards could be expected this quarter.

On the impact of material costs on the industry, MIDF Research said the stronger contractors would likely be able to navigate the elevated material-cost environment and maintain margins in the coming quarters.

The research house’s preferred names in the sector are big names, with strong balance sheets and an overseas presence. Its top sector picks included Gamuda Bhd, IJM Corp Bhd and Malayan Cement Bhd.