The construction sector is expected to remain on a positive trajectory, supported by resilient private sector demand, stronger infrastructure execution and continued growth in data centre-related projects, according to MBSB Research.
The research house maintained its “POSITIVE” view on the sector despite a mixed first-quarter 2026 (1QCY26) earnings performance among major construction players.
MBSB said earnings visibility remains underpinned by healthy order books, improving project execution and a strong pipeline of public and private sector developments.
Among the sector’s key performers, Sunway Construction Group Bhd (SunCon) and Malayan Cement Bhd emerged as standout players.
SunCon recorded a core net profit of RM118.4 million in 1QCY26, representing a 56.4% year-on-year (YoY) increase, driven by stronger margins despite revenue declining 27% YoY.
Malayan Cement delivered core earnings of RM258.4 million, up 41.2% YoY, supported by resilient cement average selling prices (ASPs), stronger ready-mix demand and improved cost discipline.
However, several contractors faced weaker results.
IJM Corp Bhd reported a core net loss of RM90.4 million in 4QFY26, impacted by foreign exchange losses and property impairments.
MRCB’s core profit attributable to shareholders declined 59.4% YoY to RM3.5 million due to higher financing costs and taxation, despite revenue growing 46.3%.
Cahya Mata Sarawak Bhd’s core profit fell 24.4% YoY to RM24.3 million due to continued losses from its phosphate business, while WCT Holdings Bhd’s earnings dropped 61.7% YoY to RM4.6 million as construction margins remained under pressure.
Despite the mixed results, MBSB said underlying sector fundamentals remained intact, supported by stronger progress billings, healthy order replenishment and improving margins from data centre projects.
Cost Pressures to Emerge in Second Half
MBSB expects the sector outlook in 2026 to remain cautiously optimistic, although rising material and input costs could pressure margins in the near term.
Steel bar prices in Malaysia increased for the third consecutive month in April 2026, rising 5% month-on-month to RM2,347.50 per metric tonne.
Although prices remain below the peak of RM3,500 per metric tonne recorded in April 2022 during the Russia-Ukraine conflict, the increase reflects renewed cost pressures.
Cement prices remained stable at RM410 per metric tonne since December 2025, supported by sustained demand from industrial developments and data centre projects.
However, input costs have started to rise, with coal costs increasing about 3% quarter-on-quarter in 1QCY26 and electricity costs rising 8%.
Coal procurement costs have also increased to around US$90 per tonne from US$65 previously, raising the possibility of higher cement production costs and future price adjustments.
MBSB estimated that a 30% to 35% increase in building material costs could reduce net margins by 2 to 5 percentage points if 20% to 30% of existing contracts are unable to fully pass on higher costs.
Construction Activity Continues Expanding
The sector extended its growth streak for the 13th consecutive quarter, although growth moderated to 8.5% YoY in 1QCY26 from 10.3% in the previous quarter.
Data from the Department of Statistics Malaysia (DOSM) showed the value of work done increased marginally to RM46.5 billion.
Civil engineering remained the largest contributor at RM15.9 billion, followed by non-residential buildings at RM13.9 billion, residential buildings at RM10.5 billion and special trade activities at RM6.2 billion.
Growth was mainly driven by special trade activities, which expanded 24.6% YoY, and non-residential buildings, which grew 12.7% YoY, supported by data centre developments.
The private sector continued to lead construction activity, contributing RM30.5 billion or 65.6% of total work done.
Selangor remained the largest construction market with RM10.9 billion in activity, followed by Johor at RM9.5 billion.
Separately, CIDB data showed 5,842 projects worth RM84.4 billion were awarded in the first five months of 2026.
MBSB expects project flows to improve in the second half of 2026, supported by the rollout of major infrastructure projects under the 13th Malaysia Plan, including the Penang LRT and flood mitigation initiatives.
Data Centres Remain Key Growth Driver
Data centres continue to be a major structural growth catalyst for the construction sector.
Major contractors including Gamuda Bhd, IJM and SunCon are benefiting from increasing demand for digital infrastructure, supported by hyperscaler expansion and rising regional demand for cloud services and artificial intelligence infrastructure.
As of December 2025, Tenaga Nasional Bhd had 56 data centre projects in its pipeline with a total maximum demand of 7.5GW.
Of these, 35 projects representing 4.5GW were already operational, while new electricity supply agreements worth 1.7GW were signed during the year.
MBSB expects around RM13 billion to RM14 billion worth of major data centre construction contracts and mechanical and electrical packages to be awarded in the second half of 2026.
The research house believes data centres will remain a key source of order book replenishment and earnings growth for contractors over the medium term.
Top Picks
MBSB maintained its positive stance on the construction sector, citing strong private sector demand, improving public project execution and long-term infrastructure spending.
The research house upgraded SunCon to “BUY” from “TRADING BUY”, maintaining its target price of RM7.90.
The upgrade was supported by SunCon’s strong execution capabilities, RM8.2 billion order book, exposure to data centre projects which make up 64% of its order book, potential RM6 billion project replenishment target and attractive dividend yield.
MBSB’s preferred picks for the sector are:
- Gamuda Berhad – BUY, target price RM5.60
- Sunway Construction Group Berhad – BUY, target price RM7.90
- Malayan Cement Berhad – BUY, target price RM10.00
The research house expects construction earnings to strengthen into 2026, although investors should continue monitoring cost inflation risks and project implementation timelines.
