SUNCON: Malaysian Construction Sector Maintains Overweight Rating Amid Robust Outlook
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
RHB Investment Bank has reiterated its “Overweight” rating on the Malaysian Construction sector, projecting a year of sustained momentum in 2026. This positive outlook is primarily driven by the anticipated trickling down of earnings from contracts secured in 2025 and a steady pipeline of new projects under the 13th Malaysia Plan (2026-2030).
Sector Outlook for 2026
The year 2026 is expected to be a period of significant project execution, translating into earnings delivery for most contractors. The 13th Malaysia Plan, commencing in 2026, is set to boost contract flows with a planned gross development expenditure of MYR81bn, a slight increase from 2025’s revised estimate of MYR80bn. Major infrastructure awards are anticipated, including components of the Penang Light Rail Transit, the Perak-Penang water transfer project, and the Johor Bahru Elevated Autonomous Rapid Transit. While the Mass Rapid Transit 3 (MRT3) awards are expected to debut in late 2026, the bank envisages the bulk of this happening post land acquisition in 2027.
2025 Contract Award Review
Data from the Construction Industry Development Board (CIDB) indicates that the total value of contracts awarded in 2025 declined by 12.6% year-on-year to MYR202.5bn, down from MYR231.6bn in 2024. However, this dip is not considered a major concern for the sector, given that 2024 represented a high base, the highest contract value awarded since the record high of MYR241bn in 2016. A breakdown reveals that Government contracts saw a 22.5% year-on-year decrease, while private contracts awarded experienced a smaller 9% year-on-year decline.
Data Centre Boom Drives Non-Residential Growth
Despite the overall decline in contract awards, the non-residential segment demonstrated resilience and growth in 2025. The value of non-residential jobs awarded increased by 6% year-on-year to MYR159.6bn, up from MYR151bn in 2024. This growth was significantly propelled by a surge in data centre (DC) project awards, particularly in the Klang Valley, with key players like Gamuda and IJM Corp securing substantial contracts. Further DC awards are not discounted, including a potential MYR2bn package for Elmina Business Park 2 and projects stemming from Pearl Computing Malaysia’s 389-acre land in Springhill, Negeri Sembilan.
Conversely, the value of infrastructure jobs awarded in 2025 slipped by 44% year-on-year to MYR24bn from MYR44bn. This decrease is largely attributed to the reduction in Government contract awards, as most infrastructure projects fall under this category.
Key Risks
A primary risk factor that could potentially impact the construction sector in 2026 is the prospective implementation of a multi-tiered foreign worker levy. Such a levy could lead to increased labour costs for contractors, potentially squeezing profit margins and affecting project viability.
