KENANGA Investment Bank Bhd has reiterated its bullish stance on Malaysia’s construction sector, citing surging demand for data centres and sustained capital expenditure by global technology giants as key drivers of growth.
After a cautious start to 2025, dampened by concerns surrounding US policies on artificial intelligence diffusion, sentiment rebounded in the second quarter as confidence returned and data centre investments accelerated.
“We remain optimistic that the construction sector will continue its upcycle into the second half of 2025, underpinned by a robust pipeline of data centre roll-outs and the impending public infrastructure projects,” the bank said in a research note.
Kenanga noted that early-year uncertainty over US AI policy had triggered a significant sell-off in construction stocks due to fears over a slowdown in local data centre developments. However, the sector has since regained momentum, bolstered by renewed investor confidence.
Beyond data centres, several public infrastructure projects are helping to lift sector prospects, including the Penang LRT Mutiara Line Packages 2 and 3, Penang Airport expansion, Phase 2 of the Pan Borneo Highway, the Sabah-Sarawak Link Road, Subang Airport redevelopment, and the Johor LRT/Autonomous Rapid Transit (ART) initiative.
While the timeline for the Mass Rapid Transit 3 (MRT3) remains uncertain, the Kuala Lumpur–Singapore High-Speed Rail is viewed as a medium-term catalyst for further sectoral growth.
Kenanga added that industrial projects, such as semiconductor foundries, would further support private sector demand.
“We maintain our assumption of average annual contract awards at RM180 billion for 2024–2026,” it said.
According to data from the Construction Industry Development Board (CIDB), RM75.5 billion in main contractor contracts were awarded as of end-May 2025, compared with RM226.5 billion awarded for the whole of 2024.
“Construction players have set ambitious job replenishment targets for 2025, which, if achieved, could offer further upside to our target prices. We maintain our ‘overweight’ call on the sector,” the bank added. - July 3, 2025
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