HLIB Research said going into the fourth quarter of the year, it expects more DC contract awards.
PETALING JAYA: The construction sector has seen a robust 2025 so far, driven by domestic contract wins which include data centre (DC) contracts as well as public sector-related jobs.
Hong Leong Investment Bank (HLIB) Research said awards won domestically sustained its upward trajectory, hitting RM39.7bil for the first nine months of 2025.
For the third quarter of 2025, awards totalled RM10.7bil.
“This marks the strongest nine-month figure since the high was achieved in 2016. It also reinforces the growth path for contracts in 2025 marching towards the RM50bil mark, thus sustaining the sector’s order-book expansion trajectory,” it added.
Notable contracts include the construction of two blocks of DCs in Puncak Alam to Gamuda Engineering worth RM2.14bil, the construction of six-storey hyperscale DC in Johor to IJM Construction valued at RM1.4bil and a RM1.13bil contract by Naim Holdings Bhd
to develop the Limbang section of the Northern Coastal Highway in Sarawak.
The research house said it had seen potential for flows to match its 2016 high, but delays in mechanical, electrical and plumbing (MEP) package awards for multiple DC jobs should see these materialising in 2026 instead.
HLIB Research said going into the fourth quarter of the year (4Q25), it expects more DC contract awards, given that the majority of them have not been awarded yet.
“The splitting of MEP packages will mean that the current DC award cycle stretches into 2026. We continue to anticipate more road contracts from Sabah and Sarawak in the coming months in addition to multiple renewable energy (RE) engineering, procurement, construction and commissioning or EPCC contracts, while ECRL Section D package hopefully materialises by year-end,” HLIB Research noted.
As for the commercial segment, the research house anticipates contributions in-line with a typical run rate in 4Q25.
It added that sequential weakness was noticed in commercial and residential projects, which was from mixed messaging on the sales and service tax (SST) implementation.
“We recall that SST exemption for construction services was removed starting July 2025, creating ambiguity over implementation for mixed developments. We expect softness from this, if any, to normalise going forward,” it said.
HLIB Research has maintained an “overweight” call on the sector, adding that contractors broadly can still add to the order book from the DC segment as well as infrastructure projects.
It noted that while valuations at current levels still provide room for upside, key sector downside risks include an artificial intelligence chip ban, a slower property market and spillover from the fuel subsidy rationalisation.
HLIB Research’s top picks include Gamuda Bhd as its stock benefits from an order-book upcycle from high certainty pipeline, differentiated DC strategy and growing leverage into the Australian RE space.
“Multiple shortlisted projects overseas as well as expanding streams of recurring income through water and RE projects overseas further introduce upside risks to our estimates.”
