PETALING JAYA: The construction industry is forecast to enjoy sustained job flows going into the second half of financial year 2026 (2H26) driven by data centre (DC) developments and major infrastructure projects.
The sector recorded a cumulative total of RM27.7bil in domestic contract awards in 1H26 with this tally built on a solid RM10.8bil in the first quarter (1Q26), which surged to RM16.9bil in 2Q26 despite external headwinds like the Iran war.
Hong Leong Investment Bank (HLIB) Research, which maintained an “overweight” rating on the sector, is predicting that a surge in DC developments and rollout of major infrastructure projects ahead of a possible general election in the fourth quarter of the year, will drive significant contract awards.
“We expect job flows to gain further momentum in 2H26, potentially lifting the full-year tally to surpass the RM49bil mark recorded in 2025.
“The ‘second wave’ of DC build-outs should drive several sizeable DC tenders to fruition for large-cap contractors in 2H26.
“An expanding funnel of sub-contract packages is expected to cascade down to specialised contractors, evidenced by their bloating DC tenders.
“The easing geopolitical uncertainties should also aid residential flows in 2H26 as developers regain confidence to launch new projects amid a more favourable cost environment and improving homebuyer sentiment,” the research house stated in its latest sector report.
“The ‘second wave’ of DC build-outs is expected to bring several sizeable tenders from US-based multinationals,” it said.
It identified several “big-ticket” infra projects as primary catalysts for 2H26 contract awards.
This includes the Penang LRT’s remaining civil and systems packages, valued at RM7bil, are likely to be awarded before the end of 2026, HLIB Research stated.
Water infrastructure projects are another big draw. Significant contract conversions are imminent for the Northern Perak Water Supply Scheme (1,500 million litres a day or mld), Sungai Rasau Phase 2 (700 mld), and Langat 2 Phase 2 (760 mld) among other projects.
The upcoming 2027 budget could see more projects rolled out.
The Johor e-ART (elevated autonomous rapid transit) project, estimated at RM10bil, is expected to be featured in Budget 2027 as Malaysia’s first rapid transit project under a Public-Private Partnership mode.
HLIB Research also expects the government to reaffirm its commitment to the MRT3 Circle Line project in the upcoming budget, with tender activities anticipated to gather pace.
“Development expenditure in Budget 2027 is anticipated to remain consistent with previous high levels, around RM81bil,” HLIB Research added.
It also expects a recovery in the residential sector. After a slowdown in 2Q26, residential building awards are expected to pick up as developers resume launches.
“This is supported by a more favorable cost environment, with prices for key inputs like steel, ready-mixed concrete, and industrial diesel retreating toward pre-war levels,” the research house noted.
HLIB Research identified Sunway Construction Group Bhd
(SunCon) and IJM Corp Bhd as its top picks for the sector underpinned by their strong execution capabilities and exposure to the ongoing DC boom.
It has “buy” calls and target price (TP) of RM9.10 a share on SunCon and RM3.02 a share on IJM Corp respectively.
“We like the former for its strong alpha to the DC build-out boom in Malaysia, robust execution capabilities with solid margin delivery and superior return on equity alongside an attractive dividend yield of 6.3%,” HLIB Research stated.
While having a constructive view on Gamuda Bhd (buy; TP: RM5.27), HLIB Research replaced it with IJM as on the thesis that the latter now offers a more compelling risk-reward profile.
