KUALA LUMPUR: A pick up in public infrastructure spending, from the fourth quarter of 2024 (4Q2024) onwards, should kick-start a stronger re-rating for the construction sector, according to CIMB Securities Sdn Bhd.
The Penang Light Rapid Transit (LRT), Penang Airport expansion, and Pan Borneo Sabah projects are expected to be the first few to be rolled out.
CIMB Securities said in addition to the Johor-Singapore Special Economic Zone (JS-SEZ), tender momentum will be supported by a rising number of public private partnership (PPP)-based projects for hi-tech plants, highways, renewable energy, and climate change projects.
The firm said through the PPP Master Plan 2030 (PIKAS 2030), the government aims to generate RM78 billion worth of investments across 17 key initiatives by 2030.
"Alongside other advanced technology facilities (ATFs), the firm posit that the "Big Three" construction companies including Gamuda Bhd, IJM Corp Bhd and Sunway Bhd's construction arm Sunway Construction Group Bhd will continue to thrive on the mushrooming of data centres (DCs) in Malaysia," it said in a note.
At RM186 billion, the total value of projects awarded in Malaysia for year to date (YTD) Oct 2024 was the highest since 2016.
CIMB Securities said this already surpassed the total value for the whole of 2023 (RM153 billion), while the sector's order book/revenue cover is still relatively healthy at 2.9 times (excluding Malaysian Resources Corp Bhd's (MRCB) long-term Bukit Jalil Sentral contract).
As a result, the firm expects contract momentum to remain robust and the sector's core earnings to grow 25.2 per cent year on year (yoy) in calendar year 2025 (CY25).
"This will be underpinned by a re-acceleration of larger public infrastructure jobs from Q4 2024 onwards, starting with the Penang International Airport expansion and Penang LRT projects, along with a step-up in infrastructure spending in East Malaysia (Sabah and Sarawak could hold their elections in 2025 and 2026, respectively)," it said.
"Our bottom-up approach for 1H25 remains largely intact, with Gamuda as our top large-cap pick, backed by its robust order flows and imminent inclusion into the FBM KLCI, successful rollout of its three new business streams (digital infrastructure, integrated data centre partnerships, and Australian renewable energy). "We also like IJM Corp within the large-cap space, while MRCB and Muhibbah are our key alpha players," it added.