HLIB Research noted there were better job flows seen from roads, water, public housing and hospitals.
PETALING JAYA: Hong Leong Investment Bank (HLIB) Research is maintaining its bullish outlook for the construction industry, as it anticipates another year of sustained job flows anchored by conventional data centres (DCs) and artificial intelligence (AI) DCs, infrastructure rollout and buoyant private sector sentiments.
The research house believes valuations of construction counters at current levels still provide room for upside.
Looking back at last year, it said domestic contract awards in the final quarter of financial year 2024 (4Q24) came in at RM12.3bil, representing a 10% quarterly sequential growth and a year-on-year (y-o-y) quantum leap of 156%, taking 2024 value awarded to RM44.2bil.
The yearly figure of contract awards for the whole of 2024 itself was a 103% y-o-y increase, with HLIB Research commenting that it was the highest tally since 2016 and second highest since 2009. “For context, 2016 numbers were driven by Mass Rapid Transit 2 (MRT2) underground, the Setiawangsa-Pantai Expressway and the Pan-Borneo Highway in Sarawak. The 2024 figure was within our base case expectation of RM40bil, but falling short of our blue sky case of over RM50bil,” it observed.
HLIB Research said apart from strong data contribution in 2024 of RM7.5bil, what was also providing impetus to the industry was the bullish property developer sentiment resulting in high residential and commercial development contracts, and with the Johor market in particular experiencing a noticeable resurgence.
On the infrastructure end, it noted there were also better job flows seen from roads, water, public housing and hospitals, but these were largely overshadowed by private sector contribution.
Glancing ahead, the research house believes the 2025 pipeline is looking decent, as apart from the recent award of Penang Light Rail Transit (LRT) Segment 1 contract which is worth RM8.3bil, it is anticipating subcontract packages in the coming months, while award timeline for systems package is expected in 3Q25.
“While there is sustained focus on smaller scale infrastructure for bigger ticket infrastructure, we hope to see Penang airport expansion awards, progress on the Penang-Perak water project, while expecting Johor to benefit from tangible developments on its LRT and automated rapid transit proposal,” it said.
Notably, HLIB Research is keeping its view on the MRT3 and Kuala Lumpur-Singapore High Speed Rail, that award-ready stage for civil packages will likely be going beyond 2025 if these are approved.
Additionally, it said development focus in Sabah and Sarawak continues to be healthy with various infrastructure projects, but these will have a very selective impact on construction stocks.
Perhaps unsurprisingly, the brokerage firm said Gamuda Bhd remains its top pick for the sector, with a target price of RM5.50, on the back of an order book upcycle from high certainty pipeline, differentiated data centre strategy and a growing leverage into the Australian renewable energy space.