PETALING JAYA: Construction award momentum is seen to be supported in the second half of 2026 (2H26) by further data centre (DC)-related jobs, the materialisation of tenders for the Penang Light Rail Transit (LRT) Mutiara Line and a recovery in residential construction awards.
According to Hong Leong Investment Bank (HLIB) Research, domestic contract awards staged a strong recovery in the second quarter of 2026 (2Q26), underpinned by accelerating DC projects and public sector infrastructure works.
HLIB Research said the improving contract flow should provide better earnings visibility for contractors heading into 2H26.
Domestic contract awards totalled RM16.9bil in 2Q26, representing a 56% quarter-on-quarter (q-o-q) increase and a 34% year-on-year improvement. The stronger quarterly performance lifted total contract awards in 1H26 to RM27.7bil, although the cumulative figure remained 4% below the corresponding period in 2025 after a slower start to the year.
HLIB Research said the robust 2Q26 performance was driven mainly by a sharp pickup in DC-related contracts, which expanded by approximately 1.3 times from the preceding quarter, as well as public sector awards that rose 2.4 times q-o-q.
The stronger DC-related awards reflected a significant acceleration in the rollout of main construction packages, alongside the conversion of various subcontracts within the segment, particularly mechanical, electrical and plumbing works.
Meanwhile, public sector activity was boosted by the award of the Ulu Padas water supply scheme.
The research house noted that these gains more than offset continued weakness in the commercial and residential segments, where contract awards declined 46% q-o-q to RM2.7bil.
Looking ahead, HLIB Research expects the pace of contract awards to strengthen further as more DC developments move into the award stage, while the long-awaited Penang LRT Mutiara Line tenders are expected to begin materialising.
A recovery in residential construction awards should also lend support to the overall contract tally during 2H26.
The research house believes these catalysts will underpin a healthier replenishment of contractors’ order books and sustain sector earnings momentum.
HLIB Research maintained its “overweight” recommendation on the construction sector, citing improving job flows and a favourable pipeline of projects.
The research house continues to favour Sunway Construction Group Bhd
and IJM Corp Bhd as its top sector picks with target prices of RM9.10 and RM3.02, respectively.
