PETALING JAYA: CGS International (CGSI) Research believes that the construction sector may be in focus again, being a predominantly domestic-oriented sector amidst the current global market rout and concerns on tariffs.
“If a full-blown tariff war occurs and crimps Malaysia’s gross domestic product (GDP) growth, there is a high likelihood that the government may consider priming the economy via construction.
“We think that construction has a strong multiplier effect given its strong correlation with GDP growth, which was more pronounced at 2.8 to 4.6 times GDP in the first to fourth quarter of 2024 (4Q24) versus 1.2 to 2.3 times in 1Q23 to 4Q23,” the research house said.
It pointed out that the KL Construction Index is down 25% year-to-date after the 63% gain last year.
CGSI Research said the sector currently traded at 13 times in 2025 price earnings multiples (P/E) and is poised to deliver earnings per share growth of 17% this year on the back of improving return on equities (ROEs) of 11.6% .
“The stronger ROEs now coupled with a still visible pipeline of order-book replenishment should support valuation expansion.
“Our channel checks indicate the pipeline for data centre (DC) projects remains strong with more tenders and acceleration of awards, where awards will likely commence from 2Q25 onwards,” it added.
The research house expected Sunway Construction Group Bhd
(SunCon) to convert some upsizing opportunities for its present DCs by 2Q25 and it also has six outstanding tenders for new clients.
Meanwhile, it shared that IJM Corp Bhd had a strong pipeline with four to five DC tenders totalling at least RM5bil.
“Gamuda in its recent briefing believes it has pencilled in a conservative target for DCs factoring in just three out of a potential seven projects in calendar year 2025 and is of the view that its key DC partners are looking to accelerate more projects,” it added.
The research house said there is a potential incremental contract value for Gamuda of RM3bil for the Penang light rail transit (LRT), bringing the total contract value to RM8.3bil. “This presents added order-book opportunities for other contractors like IJM and SunCon to take on subcontracting roles.
“According to Gamuda, the project is progressing with the fine tuning of design and mobilisation of machinery, while tenders for the Independent Checking Engineer and raw material supply are on-going,” it said.
However, CGSI Research noted that there had been a marked slowdown in tenders for semiconductor factories due to the uncertainty surrounding tariffs, putting the “China Plus One” theme in limbo.
Similarly, it believes steel prices may trend lower given the steep tariffs on China exports to the United States.
“We reiterate our sector ‘overweight’ call due to still visible order win opportunities. Our top picks remain Gamuda, SunCon and IJM which all have strong management with minimal execution risk,” CGSI Research said. It also favoured the three stocks for balance sheet strength, enabling them to capitalise on the greater emphasis on the Private-Partnership Master Plan 2030.
