Kenanga Investment Bank Research has maintained its Overweight call on Malaysia’s construction sector, citing robust contract flows, an expanding pipeline of infrastructure projects and a second wave of data centre investments that is expected to underpin earnings growth through 2026 and beyond.
The research house said main contractor contract awards totalled RM85.4 billion during the first five months of 2026, according to the Construction Industry Development Board (CIDB), putting the sector on track to meet Kenanga’s full-year forecast of RM180 billion.
Private sector projects accounted for 75% of the contracts awarded, while government projects made up the remaining 25%.
Although the figure remains below the record RM238.9 billion achieved in 2025, Kenanga noted that contract awards have consistently exceeded historical annual averages of RM140 billion to RM150 billion in recent years.
The firm believes the sector’s performance will continue to be supported by ongoing public infrastructure spending and sustained private investments, particularly in the data centre segment.
“With a healthy pipeline of near-term awards and a development cycle extending to 2030, we expect data centre projects to remain the primary growth driver for the sector in 2026,” the report said.
Infrastructure pipeline gathering momentum
Kenanga acknowledged that the rollout of several large public infrastructure projects has been slower than expected but said visibility is steadily improving.
Among the key projects expected to drive future contract awards are the remaining civil and systems packages for the Penang LRT Mutiara Line, additional works under Phase 2 of the Pan Borneo Highway and the Sabah-Sarawak Link Road (SSLR).
The report highlighted strong competition for the Penang LRT’s 6km cross-strait viaduct package, with six consortiums comprising Malaysian and international engineering firms submitting bids.
Separately, a consortium comprising DOM Industries, MMC Engineering, BTS Group and Nylex recently received a Letter of Intent from the Public-Private Partnership Unit (UKAS) for the development of Johor’s estimated RM7 billion elevated autonomous rapid transit (e-ART) system.
Kenanga added that the Kerian Water engineering, procurement, construction and commissioning (EPCC) project is expected to be awarded during the second half of 2026, while timelines for the MRT3 project and the Subang Airport redevelopment remain uncertain.
The Kuala Lumpur-Singapore High-Speed Rail (HSR), meanwhile, continues to represent a medium-term catalyst for the construction sector.
Data centre expansion enters second phase
Kenanga believes Malaysia’s data centre industry has entered a second phase of expansion, fuelled by continued investments from global technology companies.
In 2025 alone, six major land transactions involving US technology giants were completed, with Microsoft and Pearl Computing each acquiring two sites for future data centre developments.
Among the largest transactions was Gamuda’s sale of a 389-acre parcel at Springhill Industrial Park in Port Dickson to Pearl Computing for RM455.2 million, alongside RM1 billion worth of enabling infrastructure works.
Kenanga estimates the Springhill site could accommodate between 800MW and 1,000MW of data centre capacity, translating into potential construction value of between RM14 billion and RM20 billion.
In April, Pearl Computing awarded Gamuda a RM1.72 billion contract covering core, shell and mechanical, electrical and plumbing (MEP) works for the first data centre at Springhill.
During the same month, Sunway Construction secured a separate RM1.72 billion contract to build a hyperscale data centre in Bandar Serendah, while also winning an RM865.6 million contract to construct two substations for another hyperscale data centre campus in Johor.
Kenanga estimates the three major hubs at Springhill, Serendah and Johor could eventually support between 17 and 21 data centre buildings, with three to four new projects expected to be rolled out during the second half of 2026.
Strong long-term demand
According to Tenaga Nasional Berhad, three new data centre projects with a combined capacity of 0.8GW signed Energy Supply Agreements during the first quarter of 2026, bringing the cumulative total to 59 projects representing 8.3GW of capacity.
Of these, 36 projects with combined capacity of 4.53GW have already been completed.
Kenanga expects the data centre investment cycle to continue for at least another two years and maintains its assumption of 700MW of new annual capacity, equivalent to approximately RM21 billion worth of construction work each year.
Gamuda remains top sector pick
Despite slower-than-expected infrastructure rollouts, Kenanga said persistent demand for data centres and continued capital expenditure by global technology firms underpin its positive outlook for the sector.
Gamuda remains the research house’s top construction pick, supported by its strong positioning for future data centre contracts, overseas expansion, record RM52.3 billion order book and growing renewable energy business.
Among the large-cap names, Kenanga also favours Sunway Construction and IJM Corporation.
For mid-cap exposure, it continues to recommend Kerjaya Prospek for its resilient earnings and dividend yield of around 5%, while Kimlun Corporation is viewed as a key beneficiary of future infrastructure rollouts among the smaller-cap construction companies.
