• Robust Construction Growth is Prevailing. The construction sector experienced robust growth in 3Q2024, with the value of work done (VoW) rising 22.9% YoY, driven primarily by the private sector, contributing 63.5% (RM26.1bn) of the total VoW. This surge was largely attributed to non-residential building projects amounting to RM9.3bn. Key regions such as Selangor, Johor, Wilayah Persekutuan, and Sarawak accounted for 61.4% of the total VoW, reflecting ongoing progress in major infrastructure projects like the East Coast Rail Link (ECRL), data centers, and highways. By sector, civil engineering works rose 12.0% YoY to RM15.2bn, marking the highest level since 1Q2020, driven by intensified project implementation in transport infrastructure and urban development. The construction sector achieved a total value of RM116.8bn for the first three quarters of 2024, representing a 19.1% growth compared to the corresponding period in 2023 (1Q2023–3Q2023: 9.0%).

• Public-Private Partnership (PPP) to Foster Public Infra Growth. The construction sector is undergoing a transformative shift under the Public-Private Partnership (PPP) Master Plan 2030 (PIKAS 2030), which places a strong emphasis on the user-pays model as a longterm catalyst for growth. This strategic framework is expected to drive the development of new industrial parks and data centers, with key states like Selangor and Johor anticipated to see significant growth. These areas are poised to fuel demand for civil and industrial construction projects.
  
  In addition, major PPP infrastructure initiatives, such as the Johor-Singapore Rapid Transit System (RTS), the expansion of the Kulim Hi-Tech Park, and region-specific projects like the Taman Perindustrian Hijau Bersepadu in Perak, are set to improve connectivity across the country. These developments will not only strengthen Malaysia's position as an attractive investment destination but will also generate substantial spill over benefits for the construction sector. As infrastructure demands rise, there will be increased needs for complementary projects such as housing, transportation, and commercial facilities, further boosting the sector’s growth.

• Foreign Direct Investment (FDI) and US Trade Policies. Malaysia’s strategic location and stable infrastructure position it as a prime beneficiary of evolving foreign direct investment (FDI) trends and shifting US trade policies. The ongoing US-China tensions have prompted multinational corporations (MNCs) to diversify their supply chains, leading to increased demand for data centers (DC) and advanced factory technologies (AFT) in Southeast Asia. Malaysia’s government policies further support these high-tech investments. However, risks persist; shifts in US policies, such as export restrictions on critical technologies, could limit investments from China-based tech firms. Balancing these dynamics will be crucial for sustained growth in the sector.

• Economic Trends Shaping Industrial, Data Centre, and Renewable Energy Projects in 2025. The surge in demand for industrial properties, data centers, and renewable energy (RE) infrastructure is reshaping the construction landscape. This growth is driven by the rise of e-commerce, digital transformation, and global sustainability goals. Key projects include logistics hubs, hyper scale data centers, and renewable energy plants. These initiatives diversify job opportunities and encourage the adoption of green construction technologies and sustainable practices. The construction sector is increasingly aligning with environmental, social, and governance (ESG) principles, which enhances its appeal to both investors and stakeholders.

• Regional Expansion in Infrastructure and Building Projects. Malaysian construction players are expanding their footprint in regional markets through international infrastructure and building projects. This diversification mitigates domestic market risks and ensures business continuity. Expertise in large-scale urban developments, transportation infrastructure, and renewable energy projects has enabled local companies to secure high-value contracts globally. Such ventures strengthen Malaysia’s competitiveness, boost technical capabilities, and reinforce its position as a key player in the international construction arena.

• Key Risk. Key risks to the sector include: (i) Fluctuating Material Costs in the price of key construction materials (e.g., steel, cement) due to market volatility or supply chain disruptions; (ii) Labor cost pressure persists due to the government’s mandated minimum wage and EPF contribution for foreign workers; (iii) Slower-than-expected project rollouts due to regulatory delays caused by environmental approvals, policy reviews, and land acquisition issues remain a significant challenge.

• Maintain Overweight on Construction sector. We maintain our OVERWEIGHT stance for Construction Sector, with a BUY call for Kerjaya (TP: RM2.30), and AQRS (TP: RM0.40), meanwhile HOLD for SunCon (TP: RM4.27), and Gamuda (TP: RM4.87). This recommendation is driven by ongoing momentum in both domestic and regional infrastructure developments, alongside growing private sector demand.

Source: BIMB Securities Research - 2 Jan 2025