The construction sector has been the focal point of the market over the past year owing to strong contract flows as major tech giants construct data centres, coupled by public sector installing or upgrading transportation infrastructure, according to analysts.

Kenanga reported that contract flows remain robust in the near term for data centre construction, offering 7,200MW worth of contract opportunity by 2035. According to Tenaga Nasional Berhad (TENAGA), 4,000MW of the 7,200MW capacity has already been secured.

Data centre is set to lead private project growth where major IT giants like Amazon, Google, and Microsoft, along with other data
centre operators, have announced significant investment in Malaysia. This could generate approximately RM21b in construction contracts annually (assuming the pace of 700MW a year).

Data centre projects are typically fast-tracked, requiring shorter construction times, which naturally command higher profit margins. Analysts believe that large-cap builders such as Gamuda Berhad (GAMUDA), IJM Corporation Berhad (IJM) and Sunway Construction Group Berhad (SUNCON) have a competitive advantage due to their Industrial Building System (IBS) solutions, allowing them to accelerate project timelines.

On the transportation front, MRT Corp expects the construction of the MRT3 to begin in 2026, with the entire MRT Line to be fully operational by 2032. If this timeline materialises, 2025 could surpass the 2016's peak in terms of contract awards.

Other major projects in the pipeline include the Penang LRT Mutiara Line, currently pending negotiation between SRS Consortium and MRT Corp, and the Penang Airport Expansion, which is expected to conclude soon.

Additionally, the Pan Borneo Highway, Sabah Sarawak Link Road, and Subang Airport Redevelopment Plan are on the horizon.

The high-profile KL-Singapore High-Speed Rail, meanwhile, offers medium-term prospect and the upcoming Johor-Singapore Special Economic Zone (SEZ) appears to be promising for the construction sector.

Beyond that, analysts still see favourable risk-reward ratio for the small-to-mid cap builders.

Analysts maintain their OVERWEIGHT rating for the sector, supported by GAMUDA.

GAMUDA, being the top pick of the sector, has been awarded with an OUTPERFORM rating and has a target price of RM9.20. The company is favoured for its front-runner position in the tunnelling job for the MRT3, overseas contracts, strong earnings visibility as indicated by its outstanding order book and renewable energy initiative.