Hong Leong Investment Bank (HLIB) has maintained its OVERWEIGHT call on the construction sector, citing continued healthy job flows anchored by infrastructure and data centre (DC) projects in 2025, despite near-term risks tied to external trade uncertainties.
The research house reiterated Buy calls on Gamuda (target price: RM5.26), Sunway Construction (RM4.80), IJM (RM2.92), Kimlun (RM1.42), WCT (RM1.16), and MRCB (RM0.67), while assigning a Hold on TRC Synergy (RM0.38).
HLIB noted that while the sector is largely shielded from direct impacts of "Liberation Day" trade measures—specifically tariffs imposed on over 180 US trading partners—the broader macro environment has introduced second-order risks, particularly in trade-related jobs and DC capital expenditure. The KLCON Index has fallen 4.3% since the tariffs were introduced on 2 April, compounding a year-to-date decline of 12.4%.
Industrial-related contracts, which typically contribute 9–12% of annual contract flows or RM2–4 billion, may be vulnerable if investors delay decisions amid heightened trade tensions. Despite this, HLIB believes the sector's low dependency on trade-related jobs and the domestic orientation of contractors provide a cushion. Among past notable industrial projects were the Texas Instruments facility (RM1.45 billion) and the SPIL semiconductor plant (RM378 million).
HLIB also highlighted robust prospects for DC construction, with tender activity showing no signs of slowing. Awards for larger contracts of around RM2 billion per DC could emerge in the second half of the year, bolstered by Tenaga Nasional's expanding Energy Supply Agreement pipeline, which rose 26% quarter-on-quarter to 5.9GW in December 2024. The number of projects in pre-construction has doubled to 12 in the same period.
The research house further pointed to the likelihood of fiscal pump-priming, particularly through private finance initiatives (PFI), given the government's limited fiscal space and rising debt levels. Under Budget 2025, around RM9 billion worth of projects is expected to be delivered via the PFI model, including the RM3 billion Penang LRT STC package and the RM8 billion JB-ART project.
HLIB said this trend would benefit large-cap contractors with strong balance sheets, such as Gamuda and IJM. Gamuda stands out for its orderbook growth visibility, differentiated DC strategy and exposure to the Australian real estate market, while SunCon continues to leverage its parent company's support and its expanding DC portfolio.
Despite trimming target prices for several stocks due to valuation adjustments in light of macro headwinds, HLIB maintained its overall bullish view. The firm reduced its target price for Kimlun to RM1.42 from RM1.73, and for WCT to RM1.16 from RM1.31, based on more conservative price-to-earnings multiples amid ongoing sector de-rating.
