Construction sector set for another robust year with high contract awards

KUALA LUMPUR: The construction sector remains poised for another strong year following a remarkable performance in 2024, where domestic contract awards hit the highest value since 2016, Hong Leong Investment Bank Bhd (HLIB Research) said.

The firm said the value surged 103 per cent to RM44.2 billion on a yearly basis, supported by strong data centres contribution valued at RM7.5 billion. 

Key contract wins in the fourth quarter included the Ulu Padas hydro project worth RM3.05 billion, awarded to a Gamuda-Conlay joint venture and two significant contracts from Sabah's Pan-Borneo Highway valued at RM1.07 billion and RM611.3 million, respectively. 

Foreign contract awards included the Xizhi Donghu MRT project (RM4.3 billion) and the Goulburn River solar project (RM1.8 billion).

The firm kept its "overweight" stance on the sector given the robust outlook for 2025.

HLIB Research said the momentum is likely to continue, underpinned by a strong project pipeline and sustained private sector sentiment.

Apart from the recent award of the Penang LRT Segment 1 contract worth RM8.3 billion, the firm anticipates subcontract packages in the coming months, while the award timeline for the systems package is expected in the third quarter of 2025.

Meanwhile, the civil contract award for Segment 2 could still come in late fourth quarter of this year.

Although the recent release of the Interim Final Rule on artificial intelligence (AI) hardware by the US under the Joe Biden administration could potentially dent the AI-data centre pipeline (assuming validated end-user status is granted), the conventional date centre pipeline should remain fairly intact.

HLIB Research also remains positive on continuing DC private sector momentum in Johor, spurred by the Special Economic Zone, Rapid Transit System, and potential LRT/ART.

In Penang, the private sector will be supported by the National Semiconductor Strategy, healthcare, and LRT, which should also continue to support the roll-out of residential/commercial developments as well as industrial developments. 

"While there is sustained focus on smaller-scale infrastructure, such as roads and water, for bigger ticket infra, we hope to see Penang airport expansion awards and progress on the Penang-Perak water project (RM5 billion), while Johor should benefit from tangible developments on its LRT/ART proposal. 

"Our view on the MRT3 and KL-SG HSR projects is unchanged—award-ready stage for civil packages likely beyond 2025 if green-lighted," the firm added.

In Sabah and Sarawak, HLIB Research said the development continues to be healthy with various infrastructure projects but has a very selective impact on construction stocks.

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