PETALING JAYA: The construction sector is expected to remain resilient through the second half of financial year 2026 (2H26), underpinned by a fresh wave of data centre (DC) investments even as delays to major public infrastructure projects continue to weigh on contract awards.
Analysts have maintained their positive outlook on the sector, arguing that strong private-sector capital expenditure (capex), particularly from global technology giants, will more than offset slower government project implementation.
Kenanga Research retained its “overweight” call, saying: “Despite a slower-than-expected near-term rollout of public infrastructure projects, we remain bullish on the construction sector.”
It said the optimism is structurally underpinned by persistent demand for DCs and sustained capex commitments from global tech giants through 2026.
The research house believes the second wave of Malaysia’s DC expansion has now officially begun, driven by hyperscale campuses in Springhill, Serendah and Johor.
Together, these three hubs could accommodate between 17 and 21 DC buildings, with three to four projects expected to be rolled out in 2H26 alone.
According to Kenanga Research, the projects are expected to provide a multi-year earnings pipeline for contractors, with DCs remaining the sector’s primary growth driver through 2026.
It estimates annual additions of about 700 megawatts of DC capacity, translating into roughly RM21bil worth of construction work each year.
Kenanga Research continues to forecast RM180bil of contract awards for 2026, supported by ongoing private investment and gradual public-sector rollouts.
On the infrastructure front, several major projects remain in the pipeline, including the remaining Penang light rail transit (LRT) civil and systems packages, Phase 2 of the Pan Borneo Highway, the Sabah-Sarawak Link Road and the Kerian Water engineering, procurement, construction and commissioning project.
However, the timing for the mass rapid transit three (MRT3), the Subang Airport redevelopment and the Kuala Lumpur-Singapore high-speed rail remains uncertain.
BIMB Research echoed the constructive view, saying private developments continue to dominate order-book replenishment as public infrastructure implementation remains subdued amid election-related uncertainty.
The research house said more than RM14bil worth of public infrastructure contracts could potentially be awarded in the second half of the year, including Penang LRT Packages 2 and 3, the Perak-Penang Water Supply Scheme and Sungai Langat 2 Phase 2 water treatment plant packages.
However, BIMB Research cautioned that larger infrastructure projects could face further delays.
It expects the Johor Elevated Autonomous Rapid Transit project to be scaled down from an initial RM10bil estimate to RM6bil-RM7bil, while the RM31bil MRT3 project could also see further deferments amid fiscal and political uncertainties.
BIMB Research believes the Johor Economic Transformation Plan remains a key long-term catalyst, particularly if policy continuity is maintained after the upcoming Johor state election.
Infrastructure supporting Johor’s industrialisation, including water treatment facilities, the E-ART system and the proposed LPT4 highway, is expected to underpin future construction demand.
Kenanga Research continues to favour Gamuda Bhd
as its top pick, citing its strong positioning in DC projects, record RM52.3bil order book and overseas growth prospects.
Sunway Construction Group Bhd and IJM Corp Bhd are also expected to benefit from sustained DC activity, while Kerjaya Prospek Group Bhd remains its preferred mid-cap exposure.
BIMB Research, meanwhile, highlighted Kimlun Corp Bhd as an under-appreciated beneficiary of Johor’s long-term infrastructure expansion due to its established precast manufacturing capabilities and strong presence in the state, positioning it to potentially secure sub-packages under future E-ART, LPT4 and water infrastructure projects.
An analyst told StarBiz that he expects construction activity related to renewable energy to accelerate in 2H26 as battery energy storage systems become the next growth engine.
“Expanding DC investments will continue to underpin demand for renewable power infrastructure, supporting engineering and construction activity after a slower 1H26 caused by delayed investment decisions and geopolitical uncertainties.”
He expects project execution to gather pace as more renewable energy developments move into the construction phase.
