Analysts Bullish on Construction Sector as Malaysia Unveils RM220 Billion Infrastructure Projects

The government has allocated a substantial amount for the development of infrastructure plans, launching several major projects such as highways, rapid transit systems, high-speed rail, and flood prevention works. Numerous transportation, telecommunications, and energy projects are expected to drive significant demand for construction equipment. CIMB Bank emphasized that the introduction of flood mitigation projects could provide additional momentum for the Malaysian Stock Exchange Construction Index, benefiting contractors with a strong track record in flood prevention works.

Kimlun Corporation Ltd has expressed interest in bidding for flood mitigation projects in the state of Johor. The Malaysia-Singapore Rapid Transit System, expected to be completed by the end of 2026, is seen as an economic catalyst for southern Johor, enhancing connections with Singapore and revitalizing the southern property market.

This optimism is boosting the construction industry (residential and commercial building). Maybank Investment Bank indicates that the positive momentum of foreign direct investment under Malaysia's 2030 New Industrial Master Plan will provide construction opportunities for higher-value industrial building types.

Since the start of 2023, the costs of most building materials and fuel, except cement, have eased. This relief is expected to facilitate the rollout of contracts in both the public and private sectors.

Hong Leong Investment Bank (HLIB) has upgraded the construction sector to "Overweight," with Gamuda and Sunway being its top picks.

MIDF maintains a bullish stance, favoring Gamuda, IJM Corp, Sunway, and Malayan Cement, noting that these companies are likely to benefit from the construction sector's recovery, holding about 60% market share on the Malaysian peninsula.

RHB Investment Bank maintains an "Overweight" rating on the construction sector, focusing on flood mitigation projects, with top picks being Gamuda, Kerjaya Prospek Group Bhd, and Sunway Construction Group Bhd.

CLSA advises investors to pay close attention to contractors in Sabah with a solid track record and robust balance sheets, such as Gamuda Bhd, IJM Corp Bhd, WCT Holdings Bhd, and Malaysia Resources Corp Bhd (MRCB).

Maybank Investment Bank said that it is upbeat for Malaysia's construction sector in 2024, as Budget 2024 forecasts the sector's real output to expand by a quicker pace of 6.8 percent, as compared to an estimated growth rate of 6.3 percent in 2023, supported by a higher development expenditure allocation.

Analysts at Hong Leong Investment Bank suggest that 2024 will be the prime time to invest in construction stocks, considering the lag time in economic multiplier effects and the impending general election.

Below is the list of the top 5 constituents of the construction stock index(data as of 2024/3/27):

Source: moomoo, Bloomberg, the Star, the edge malaysia