KUALA LUMPUR: Significant governmental infrastructure projects are set to commence in the latter half of 2024, along with private sector investments, said Hong Leong Investment Bank Bhd (HLIB Research).
According to the research firm, several initiatives are slated for imminent implementation.
These include Penang LRT (RM10 billion), PBH Sabah Phase 1B (RM14 billion), Sabah-Sarawak Link Road Phase 2 (RM7.4 billion), the Northern Coastal Sarawak Road, Sabah water and hydro projects, the expansion of Penang airport, and important flood control projects.
These projects represent a substantial investment effort aimed at enhancing regional infrastructure and economic development.
"In short, we are expecting the rollout of direct expenditure (DE) and off-balance sheet funded projects in 2H24, following delays in 1H24, which are part and parcel of government projects.
"We believe the wave of investments into the country will continue to encourage development spending on critical enabling infrastructure like ports/airports, water infra, highways and railways," it said in a note.
HLIB Research highlighted that domestic contract awards totaled RM20.7 billion in 1H24, marking a 41 per cent year-on-year (YoY) increase, with the private sector dominating, particularly in DC contracts.
Meanwhile, the firm reckoned that the upcoming Johor-Singapore Special Economic Zone (SEZ) could spell more opportunities on this front over the longer term.
It added that potential developments on prospective projects like Kuala Lumpur-Singapore high speed rail (HSR) and Johor automated rapid transit (ART) could spur stronger sector sentiment.
"We view the latter as a critical and urgent dispersal system.
"The Johor-Singapore rapid transit system (RTS) is projected for completion in 2026, with a projected first-year daily ridership of 40,000.
"Increasing economic linkages will only amplify the need for high-capacity connectivity infrastructure to complement the RTS link," it noted.
Overall, HLIB Research has maintained an 'Overweight' call on the construction sector, anticipating that infrastructure projects will take off and lift contract awards in 2024 to over RM40 billion, the highest since 2016.
The firm opined that the DC and Johor reinvigoration themes still have room to play out, and investors' preference for the picks and shovels trade in the DC boom should continue to drive sector multiple rerating.
It added that valuations at current levels still provide room for upside.
HLIB Research has selected Gamuda Bhd and Sunway Construction Group Bhd (SunCon) as its top picks, as both have contract levers from multiple segments.