PETALING JAYA: Construction stocks are projected to see healthy contract flows this year at the rate of the last two years supported by data centres (DCs), water infrastructure as well as other infrastructure projects from Penang and Johor, says Hong Leong Investment Bank (HLIB) Research.
Water infrastructure would be among major projects driving construction sector order books in 2026, with multibillion ringgit ones such as the Northern Perak water supply scheme, the Ulu Padas scheme and the second phases of the Rasau and Langat projects.
The research house noted that key anchors for the sector remain DCs, as this year would see large campuses taking shape.
“The phased buildout should sustain award opportunities and a steadier annual replenishment profile, we gather that tendering pace has remained frenetic,” it said.
The underlying momentum in contract awards remains healthy, with RM49.2bil of projects allocated in 2025, marking an increase of 11.3% from 2024.
The growth was anchored by sizeable infrastructure conversion, led by Penang’s RM8.3bil light rail transit (LRT) first segment and the Klang Valley’s LRT3’s RM2.47bil scope reinstatement variable order plus other public sector projects.
“While the 2025 tally deceptively falls short of the previous cycle high of RM56.4bil in 2016, we think this understates the strength of the current cycle as the cumulative 2024 to 2025 contract value of RM93.4bil is 9% higher than the 2016 to 2017 sum.
“Thus, we anticipate a more sustained growth in the sector’s bottom-line performance,” it said.
Penang’s LRT would generate a potential RM8bil in job flows and more projects can be expected from the Johor-Singapore special economic zone, supported by the RM3.4bil allocated under Budget 2026’s infrastructure development fund.
The Klang Valley’s MRT3 would only see tender reactivation and awards after 2026.
HLIB Research has maintained an “overweight” call on construction stocks, with its top picks being Gamuda Bhd
at a target price (TP) of RM6.88 and IJM Corp Bhd, with a TP of RM3.40. Both have “buy” calls.
“Valuations at current levels still leave room for upside, in our view.”
While construction stocks outperformed Bursa Malaysia’s benchmark FBM KLCI for most of last year, they still declined 5.3% compared to the benchmark index due to a sharp drop in the fourth quarter of financial year 2025 (4Q25) from a 9.8% drop driven by profit taking.
Although key construction stocks such as Gamuda and Sunway Construction Group Bhd ended the year positively with 5.1% and 22.2% gains respectively, IJM declined 25.3% amid investor concerns from its non-construction segments.
“Despite broad base sell-down of construction equities in 4Q25, we note that several of our coverage companies marked new record order book highs such as Gamuda (RM45.9bil) and Kimlun Corp Bhd (RM4.9bil), while IJM also hit a robust RM9.3bil.”
