The construction sector is expected to continue its strong momentum, supported by significant developments in major infrastructure projects, according to reports by RHB Investment Bank (RHB). The sector saw steady contract rollouts with MYR89 billion worth of projects awarded in the first half of 2024, reflecting robust private and government investments.
RHB maintained its OVERWEIGHT rating in the construction sector, recommending top picks such as Gamuda, Sunway Construction, and Kerjaya Prospek. The bank noted that trading momentum among construction stocks is likely to remain strong, bolstered by progress in key projects such as the Mass Rapid Transit 3 (MRT3) and the Kuala Lumpur-Singapore High-Speed Rail (HSR) project.
The house highlighted that the East Malaysia infrastructure projects showed promising advancements. Phase 1B of the Pan Borneo Highway Sabah and the Sarawak Sabah Link Road Phase 2 are progressing well, with several packages already awarded and more expected by the third quarter of 2024. This momentum is anticipated to drive further growth in the region's construction activities.
The industrial sector also showed remarkable growth, with non-residential properties seeing MYR77 billion worth of projects awarded year-to-date compared to MYR81.7 billion in 2023. This growth is attributed to rising foreign direct investment (FDI), with Malaysia approving MYR83.7 billion in investments in the first quarter of 2024, 57% of which were foreign investments.
RHB reported that the Bursa Malaysia Construction Index (BMCI) is trading at a forward Price-to-Earnings (P/E) ratio of 19-20x, which is above the 16x seen during the 2017 construction upcycle. The bank believes there is still room for upside, especially with the prevalence of industrial projects such as data centres, which were not present in the previous upcycle. Mid- to large-cap contractors like Gamuda and Kerjaya Prospek are trading at below 20x, suggesting potential for index growth.
Top picks, Gamuda, Sunway Construction, and Kerjaya Prospek, are highlighted for their strong earnings visibility over the next two years. Gamuda has a significant presence both domestically and overseas, while Sunway Construction and Kerjaya Prospek benefit from steady project pipelines and ongoing industrial jobs.
