RHB Investment Bank said it is maintaining an overweight call on the construction sector with top picks on Gamuda (GAM), Sunway Construction (SCCG), and Kerjaya Prospek. The house reiterates that the net development expenditure (DE) under Budget 2025 is expected to remain high at c.MYR90bn – this is coupled with a decent chunk of DE allocated for the transport sub-sector, ie highways, ports, and rail projects. Risks may lie in the potential implementation of the multi-tiered foreign worker levy, which
entails higher levies for more foreign workers hired.

A net DE target of MYR395bn was earmarked during the 12th Malaysia Plan's (12MP) (2021-2025) mid-term review in Sep 2023 vs an earlier target of MYR397bn. Also, the Government raised the ceiling for gross DE under the 12MP (initially at MYR400bn) by an additional MYR15bn during the tabling of Budget 2024. Hence, it is reasonable to assume the amount of net
DE (excluding loan recoveries) will increase roughly by the same magnitude of MYR15bn to c.MYR410bn from MYR395bn previously.Assuming the Government commits to the MYR89.2bn net DE for 2024 – the total cumulative net DE from 2021 to 2024 would be c.MYR317.8bn.

Taking into consideration the estimated net DE of MYR410bn from 2021 to 2025 (under 12MP and after the ceiling was raised in Budget 2024), RHB estimate net DE for FY25 at c.MYR92.2bn. We also envisage the allocation of DE to the transportation sub-sector to be c.20-23%, as c.21% of DE was earmarked for said sub-sector under Budget 2024.

Other potential Budget 2025 developments. Firstly, whether a light rail transit (estimated cost: MYR16.7bn) or elevated autonomous rapid transit (EART) system (estimated cost: MYR7bn) is implemented in Johor Bahru. Back in May, the Transport Ministry was expected to complete a study on a proposed EART in Johor Bahru by August – potentially giving room for an
update during Budget 2025. Secondly, the house said it envisage some developments on the Juru-Sungai Dua Elevated Expressway (estimated at MYR1.8bn) in Penang – the Public Private Partnership Unit or UKAS under the Prime Minister's Department and PLUS Malaysia officially started discussions on this project in January to address the persistent traffic woes in Seberang Prai.

Key beneficiaries include GAM, SCCG, and IJM Corp, which have solid track records in government infrastructure projects. Concurrently, Gabungan AQRS and Econpile may emerge as sub-contractors for this project.

The Public-Private Partnership Masterplan 2030 (PIKAS 2030) launched in September signals the Government's intention to expedite infrastructure expansion by leveraging on private sector resources. Key potential projects (which probably never made public headlines) highlighted under PIKAS 2030 include the Kuantan-Singapore Expressway, expansion of the West Coast
Expressway (Banting-Nusajaya), Klang Logistics Corridor, Kuala LumpurKlang Expressway, and Pasir Gudang Expressway among others.