- Reinvigoration of development projects in the data centre and Johor regions still has room to play out, despite the sequential slowdown in data centre contracts in the second quarter of 2024 (2Q2024), the research house said in a note on Thursday.
KUALA LUMPUR (Oct 3): Hong Leong Investment Bank Bhd (HLIB) has maintained its “overweight” stance on the construction sector as it bet that the construction contracts awarded in 2024 could exceed over RM40 billion, with the potential to surpass RM50 billion, marking the highest level since 2016.
Reinvigoration of development projects in the data centre and Johor regions still has room to play out, despite the sequential slowdown in data centre contracts in the second quarter of 2024 (2Q2024), the research house said in a note on Thursday.
“Investors’ preference for the picks and shovels trade for the DC (data centre) boom should continue to drive sector multiple rerating. Valuations at current levels still provide room for upside,” HLIB said.
Gamuda Bhd (KL:GAMUDA) and Sunway Bhd’s (KL:SUNWAY) construction arm emerged as HLIB’s top picks as both companies have strong pipeline visibility and are in the earnings upcycle phase, it noted.
Malaysia saw RM11.2 billion in domestic contract awards in 3Q2024, bringing 9M2024 value to RM31.9 billion. Of this amount, 42% was attributed to public projects, according to HLIB.
More public projects could roll out in 4Q2024, taking cue from 3Q2024 awards such as work packages from Sarawak-Sabah Link Road Phase 2 and Pan Borneo Highway Sabah 1B projects, it said.
Potential contracts in the East Coast include for the Sabah hydro, Pan Borneo Highway Sabah Phase 1B and Sabah Sarawak Link Road Phase 2 projects.
In the peninsula, the awards could centre around the Penang light rapid transit (LRT), Penang airport works, water sector infrastructure projects and data centre works after a lull in 3Q.
Meanwhile, developments on the Johor LRT and KL-Singapore high-speed rail (HSR) could also lift sentiment within the construction sector.
“We view the former as a critical dispersal system for the RTS (Johor Bahru–Singapore Rapid Transit System) and efforts to revitalise Johor will require high capacity connectivity infra for the greater JB (Johor Bahru) area,” HLIB added.
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