Malaysia’s construction sector seems to be on solid footing with RHB giving it a overweight call picking Gamuda Bhd, Sunway Construction Group Bhd and Kerjaya Prospek Group Bhd as its top picks.
This comes as the research house expects stronger development expenditure in the second half of 2026 to support fresh contract awards.
RHB said net development expenditure amounted to RM32.5 billion in 1H26, compared with the initially budgeted gross development expenditure of RM81 billion for the full year.
Based on historical spending patterns, RHB expects development expenditure to accelerate in the second half, potentially translating into more contract awards before year-end.
Among projects that could provide opportunities are Segment 2 of the Penang Light Rail Transit project and possible new government hospitals, including the proposed Bandar Enstek Hospital in Negeri Sembilan.
Budget 2027 Transport Allocation In Focus
RHB said a major catalyst for the construction sector in Budget 2027 would be a potentially higher allocation for transport infrastructure.
For 2026, about RM17.6 billion, or 21.6%, of the RM81 billion gross development expenditure allocation was earmarked for the transport subsector.
A stronger transport allocation could sustain contractors’ order-book replenishment, while a lower-than-expected allocation remains a key downside risk to the sector outlook.
Minimum Wage Impact Seen As Manageable
RHB also assessed the potential impact of changes to Malaysia’s minimum wage.
The current minimum wage of RM1,700 is due for review next year, while proposals ranging from RM2,000 to as high as RM3,100 have been raised.
However, RHB does not expect a move to RM2,000 to create a major cost shock for contractors.
Construction Industry Development Board data cited by the research house showed that the minimum daily wage for a general construction worker in Selangor, whether local or foreign, is already around RM100 per day excluding overtime.
Assuming six working days a week, this translates to roughly RM2,400 per month, suggesting many construction workers are already earning above the statutory minimum.
RHB also expects the potential introduction of a multi-tiered foreign worker levy to have only a limited earnings impact on contractors.
Based on its preliminary assessment of Kerjaya Prospek and Sunway Construction, the impact on earnings is estimated at below 1%.
Contractors Could Benefit From Price Adjustment Mechanism
Another development being watched is the construction industry’s call for a broader Variation of Price mechanism to help contractors cope with sharp increases in input costs, particularly for fixed-price contracts.
RHB said the government is evaluating the implementation of a VOP condition specifically covering bitumen and industrial diesel, with the matter expected to be deliberated by the National Economic Action Council.
If implemented, the mechanism could reduce cost pressures on contractors, particularly those involved in piling and other fuel- and material-intensive works.
RHB said the combination of stronger development spending, potential infrastructure awards and manageable labour-related cost pressures continues to support its positive stance on the construction sector.
