PETALING JAYA: Hong Leong Investment Bank (HLIB) Research is keeping its bullish outlook on the construction sector, premised on its expectation that infrastructure projects will take-off to lift contract awards in 2024 to over RM40bil, and potentially surpassing RM50bil.
For the final quarter of the year (4Q24), it continues to foresee rolling out of sizeable public infrastructure projects, commenting that the trickling out of works packages from Sarawak-Sabah Link Road (SSLR) Phase 2 and Pan Borneo Highway (PBH) Sabah 1B projects in the third quarter reaffirms this.
According to the research house, infrastructure projects that could deliver contracts in 4Q24 include remaining parts of the Sabah hydroelectric dam project, the aforementioned PBH Sabah Phase 1B and SSLR Phase 2, as well as the Penang Light Rail Transit (LRT), among others.
“We anticipate stronger flows from the data centre space after a temporary lull in 3Q24, as some contractors could see their data centre pipeline materialising in the fourth quarter,” it said in a note to clients yesterday.
Job flows aside, HLIB Research asserted that sector sentiment could also be lifted by developments in the Johor LRT and the Kuala Lumpur-Singapore High Speed Rail.
In particular, it sees the former as a critical dispersal system for the Johor Baru-Singapore Rapid Transit System, adding that efforts to revitalise Johor will require high capacity connectivity infrastructure for the greater Johor Baru area.
As such, the research house believes the data centre and Johor reinvigoration themes still have room to play out, adding that investors’ preference for the picks and shovels trade for the data centre boom should continue to drive sector multiple re-rating.
The brokerage reported that domestic contract awards in 3Q24 came in at RM11.2bil, which took the value of contracts awarded for the nine months ended September to RM31.9bil, increasing by 87.6% year-on-year.
“On a sequential basis, we note that public projects increased to RM4.7bil from RM1.6bil in 2Q24, forming a much higher 42% of contract value awarded in 3Q24.
“Key infrastructure projects which were delivered after a period of waiting are SSLR Phase 2, Kuching Urban Transportation System, PBH Sabah 1B and flood mitigation jobs,” it said.
Nevertheless, the research unit also observed a sequential slowdown in data centre related contracts coming in at roughly RM909mil, having registered RM4.04bil in 2Q24, with only one main contract secured by Binastra Corp Bhd
from Exsim Data Centre.
HLIB Research said there was also slightly lower commercial and residential project quarter-on-quarter which was predictable given the exceptional pace of jobs from April to June. Among its top ticks is Gamuda Bhd, with a target price of RM9.08 a share.
