Kenanga Research said US tech giants continue to expand their data centres in Malaysia.
PETALING JAYA: The robust pipeline of public infrastructure and data centre projects will keep players in the construction sector busy this year, despite recent headwinds that led to a heavy sell-down in construction stocks.
Kenanga Research remains bullish on the sector as it believes the upcycle is expected to continue further into 2025.
It said US tech giants continue to expand their data centres in Malaysia.
The feedback from contractors suggests that data centre job tenders remain active, driven by ongoing capital expenditure spending from major tech firms.
Construction companies have also set ambitious job replenishment targets for 2025.
It has an “overweight” rating on the sector with Gamuda Bhd
being its top stock pick.
It has an “outperform” call on the stock with a target price (TP) of RM4.90 a share.
The rationale for Gamuda being its top pick include the fact that the company is in the driver’s seat for the Mutiara Line of the Penang LRT, its ability to secure new jobs in overseas markets and its solid war chest after the disposal of its toll highways.
Also, its strong earnings visibility underpinned by a record outstanding order book of RM37bil and its inroads into the renewable energy space are also positives.
Kenanga Research added that the recent sell-off also presents a solid buying opportunity, particularly for large-cap builders such as Sunway Construction Group Bhd (“outperform”, TP: RM5.31 a share) and IJM Corp Bhd (“outperform”, TP RM3 a share).
It believes the strong contract flows will continue and while the MRT 3 timeline remains uncertain, the Penang LRT Mutiara Line’s Package 2 and 3 are in the pipeline.
Others include major projects such as the Penang Airport expansion, the second phases of the Pan Borneo Highway and Sabah-Sarawak Link Road, the Subang Airport redevelopment plan and the Johor LRT.
It views the high-profile KL-Singapore High-Speed Rail as a medium-term prospect.
Additionally, the Johor-Singapore Special Economic Zone offers significant prospects for the sector.
Beyond data centre projects, industrial developments such as semiconductor foundries will drive growth in private sector projects.
It maintains its three-year average annual contract awards assumption of RM180bil over 2024 to 2026.
Year-to-date, a total of RM18.9bil in main contractor construction contracts were awarded as of end-February 2025, versus RM221.7bil in 2024, according to the Construction Industry Development Board.
It also maintains its 700 megawatts annual data centre award assumption for 2025.
Since the beginning of the year, sentiment in the construction sector has been affected by concerns surrounding the United States artificial intelligence (AI) diffusion rules, with fears that this could impact the roll-out of data centre plans in the country.
The worry was exacerbated by the introduction of China’s AI model, DeepSeek, raising concerns that its cost-effective nature might require less data centre space, potentially reducing demand. This has led to heavy sell-offs in construction stocks, it said.
