RHB Investment Bank Bhd (RHB Research) has maintained its OVERWEIGHT stance on the construction sector, citing a robust pipeline of projects and steady contract flows.
The research house highlighted Gamuda Bhd, Sunway Construction Bhd (SunCon), and Binastra Bhd as top picks, backed by commendable earnings visibility and diversified job portfolios. Despite a negative earnings revision trend over the past 12 months, the sector remains active, with total work value in 2024 reaching a record RM159 billion, up 20% year-on-year.
The data centre (DC) segment continues to present strong growth prospects. Cushman & Wakefield reported around 822MW of planned DC capacity in Johor, while Negeri Sembilan is emerging as another key location. Gamuda’s recent acquisition of 389 acres in Port Dickson could accommodate between 500MW and 1GW of DC capacity.
Additionally, HSS Engineers is targeting a separate 100MW DC project in the state. RHB Research noted that the presence of Tier 1 DC developers in Malaysia could mitigate risks associated with US AI Diffusion Rules.
Infrastructure projects are also expected to drive sector growth. The upcoming Elevated Autonomous Rapid Transit (EART) system in Johor, which aims to complement the Johor Bahru-Singapore RTS Link, is set to have an estimated cost of RM6-7 billion. The proposed 211km Kita Selangor Rail Line from Sabak Bernam to Negeri Sembilan adds to the list of large-scale projects, alongside the Penang Light Rail Transit (LRT) system, which still has RM5 billion worth of packages remaining.
Meanwhile, the reinstatement of five LRT3 stations is also progressing.
Flood mitigation and water-related infrastructure could unlock further opportunities. The Selangor government has proposed a RM6 billion underground flood tunnel system, while 35 flood mitigation projects are in the pre-implementation stage and another 73 are underway under the RM22.9 billion allocation in the Fifth Rolling Plan of the 12th Malaysia Plan.
The Bursa Malaysia Construction Index (BMCI) is currently trading at a forward price-to-earnings ratio of 15.2 times, lower than the 19 times seen in late 2024. RHB Research believed this valuation is unjustified, given the sector’s resilience and the Works Ministry’s projected RM200 billion in construction spending for 2025. The current valuation is also in line with the 2017 construction upcycle, despite the added growth potential from DC developments.
