Flat DE Disappoints, Private Sector Support Offers Hope

The announcement of Malaysia’s Budget 2025 in mid-October 2024 was slightly disappointing to local contractors, as development expenditure (DE) remained unchanged at RM86bn, matching last year’s allocation but falling short of our projected RM97.9bn. Additionally, the government provided no further updates on key large-scale rail projects, including the Penang Light Rail Transit (LRT), Mass Rapid Transit 3 (MRT3), Johor Elevated Automated Rapid Transit (ART), and the Kuala Lumpur–Singapore High-Speed Rail (HSR).

Nonetheless, we do not view this as a dampener on overall sentiment. The additional RM9bn allocated for Private Finance Initiatives (PFIs) and RM25.5bn in direct investments from government-linked investment companies (GLICs) will supplement DE, underscoring a more prominent role for private sector contributions in driving growth in the construction sector.

Strengthening the Public-Private Partnership (PPP) Model

To foster stronger public-private collaboration, the government has introduced the Public-Private Partnership Master Plan 2030 (PIKAS 2030). This initiative aims to drive economic growth across key sectors, including tourism infrastructure, renewable energy, smart agriculture, and science and technology parks. Leveraging on private investment, PIKAS 2030 is expected to sustain and accelerate major projects, including potential updates on the Penang LRT and the KL-SG HSR.

Thriving Data Centre Sector

Malaysia remains an attractive location for multinational data centre setups, thanks to its stable and mature grid infrastructure and favourable government incentives. This competitive edge is expected to strengthen, even as sustainable development guidelines are being finalised, which are expected to further enhance Malaysia's appeal by supporting data centre operators in meeting their environmental, social, and governance (ESG) commitments. This advantage aligns well with the increasing demand for large-scale storage solutions. Significant investments from major USbased multinationals like Amazon AWS, Oracle, and Microsoft are expected to bring substantial benefit to local contractors, positioning them as key players in large-scale data centre projects.

Booming Property Sector Boosts Construction Sector

The revitalisation of Malaysia’s property sector has been a major driver of increased construction activity, spurred primarily by rising demand for affordable housing and industrial properties. Initiatives such as the Forest City Special Financial Zone and the Johor-Singapore Special Economic Zone are set to accelerate this trend, especially in the housing sector. In addition, urbanisation efforts in northern regions like Seberang Perai and Batu Kawan are expected to boost demand for residential and infrastructure projects as these areas continue to develop and upgrade.

This growth trajectory is likely to benefit construction firms focused on housing, providing a steady flow of projects that align with national development goals and address housing needs in both southern and northern regions.

Maintain Overweight

Overall, we believe GAMUDA (Buy, TP: RM10.98) and SUNCON (Buy, TP: RM6.68) are positioned as primary beneficiaries in the construction sector, largely due to their expertise in executing complex projects and strong track records in large-scale infrastructure work. SUNCON, currently holding the largest market share in the data centre industry, is anticipated to secure additional major data centre contracts by year-end, based on our channel checks.

Additionally, KERJAYA (Buy, TP: RM2.79), BNASTRA (Buy, TP: RM2.05), and INTA (Buy, TP: RM0.72) are well-positioned to capitalise on the rising demand for residential properties in northern and southern Malaysia. This positioning is strengthened by their key clients with substantial landbanks and a strong presence in these regions.

Given these dynamics, we maintain an Overweight rating on the sector.

Source: TA Research - 5 Nov 2024