PETALING JAYA: The prospects of the construction sector remain largely intact despite headwinds brought on by the proposed US restriction on artificial intelligence (AI) chips and the emergence of DeepSeek.
Kenanga Research said it is “overweight” on the sector and continues to value large cap builders at a forward price-to-earnings (PE) ratio of 22 times.
The research house said it is still bullish on data centre job prospects, underpinned by demand that is unlikely to slow down.
“Despite AI diffusion, major tech giants including Microsoft, Google, Amazon and Meta have reaffirmed their commitment to AI investments in 2025, as reflected in their latest earnings reports.
“Microsoft has earmarked US$80bil for AI investments in its current fiscal year, reinforcing its leadership in AI and cloud services.
“Google plans to increase capital expenditure to US$75bil in 2025, up from RM52.5bil in 2024,” Kenanga Research said in its report yesterday.
Furthermore, Amazon plans to spend roughly US$105bil in 2025, an increase from US$75bil in 2024, with most of the funds allocated to AI.
Meta expects to invest US$60bil to US$65bil in 2025, focusing on AI-driven advancements and data centre expansion.
These figures reinforce the belief that aggressive capital investments remain essential in an increasingly AI-driven landscape.
Kenanga Research said the 7% cap on AI chip deployment in Tier-2 countries like Malaysia may intensify competition among hyperscalers, including universal validated end-users such as Google, Microsoft and Amazon, leading them to leading them to build out their locations in Malaysia more quickly.
“As such, this restriction is likely to accelerate national validated end user-led data centre developments,” it added.
The research house highlighted that this insight is further supported by a Synergy Research market intelligence report which shows that the US accounted for 51% of the world’s hyperscale data centre capacity in the fourth quarter of 2023. The “rest of the world”, including Malaysia, holds only 5% of the global capacity.
Kenanga Research said its channel checks indicated that data centre construction job prospects remain robust with no slowdown in ongoing projects.
Gamuda Bhd
and Sunway Construction Group Bhd (SunCon) are in the final stages of securing new data centre contracts.
Gamuda confirmed that there are no plans to downsize or alter its Springhill Industrial Park data centre development in Negri Sembilan, believed to be built exclusively for a hyperscaler.
There are several other data centre job awards in the pipeline as well.
“SunCon is likely to exceed its initial new job replenishment target of RM4bil to RM5bil this year, potentially reaching RM6bil to RM7bil, driven by strong demand for data centre jobs,” the research house said.
It noted that data centre projects make up just 7% of Gamuda and IJM Corp Bhd’s portfolios, compared to 55% of SunCon’s outstanding order book.
Any delay or cancellation of data centre projects would have an insignificant impact on Gamuda.
However, IJM was hit badly by reports on the proposed AI chip restriction and its shares has been slow to recover compared to Gamuda and SunCon.
Kenanga Research maintained its assumption for new data centre contract wins over the next two financial years for Gamuda, SunCon and IJM at RM3bil, RM2bil and RM1bil, respectively.
Gamuda remains its top pick for the sector on the back of the company’s diversified order book.
Kenanga Research has raised its target PE for large-cap builders to 22 times, up from 20 times, reflecting a 10% premium over the 2016 upcycle valuation.
This revision is based on the research house’s projection of RM180bil in annual contract awards for 2024 to 2026, an 11% increase from the RM161bil annual average in 2016 to 2018.
So far, actual 2024 contract awards have reached RM219.8bil, according to the Construction Industry Development Board.
Kenanga Research has a target price of RM5.46, RM4.52 and RM3.16 per share for Gamuda, Suncon and IJM, respectively.
Gamuda, Suncon and IJM closed at RM4.48, RM3.98 and RM2.43 yesterday.
