Building momentum selectively
MALAYSIA’S construction sector is heading into a more selective phase, with private-sector projects continuing to drive growth while the release of major public infrastructure contracts remains uneven.
The next leg of the cycle is likely to depend on whether data centre (DC) investment can sustain momentum and whether government spending accelerates as the 13th Malaysia Plan (13MP) gathers pace.
UOB Kay Hian (UOBKH) Research maintains an “overweight” call on the construction sector, arguing that most contractors under its coverage are positioned for resilient earnings through 2026 and 2027 despite a slower public project rollout.
This, it says, is backed by record-high private job flows from the residential and DC segments.
UOBKH Research’s top picks are Gamuda Bhd, with a RM5.25 target price (TP), Binastra Corp Bhd with a TP of RM2.68, and Kerjaya Prospek Group Bhd at RM3.20.
It likes the trio for their exposure to DC growth and internal project visibility.
The research house says sector valuations at 18 to 19 times 2027 forecast price-to-earnings (PE) remain attractive, particularly when earnings growth from the private-sector job upcycle is taken into account.
On the downside risk posed by the impending 16th General Election (GE16), it says construction stocks are unlikely to suffer the scale of the selldown seen during GE13 in 2018.
“Construction companies are unlikely to suffer the magnitude of the 2018 election selldown when Barisan Nasional had its 60-year reign as the ruling government ended for the first time,” UOBKH Research says.
The brokerage notes that construction stocks corrected 1% to 12% in the two months before GE14 in 2022, before rising 4% to 14% in the two months afterwards.
“We are of the view that the downside from the upcoming election is limited as the market has already factored in the volatility, and sector bellwethers are riding on the DC upcycle with record-high earnings delivery,” it argues.
AmInvestment Bank (AmInvest) Research takes a similarly positive view, but argues that the market is becoming increasingly selective.
It says the construction cycle remains intact, supported by strong private-sector investment and large unbilled order books that provide earnings visibility for several years.
However, with valuations already having rerated and costs rising, AmInvest Research favours contractors with strong balance sheets, healthy cash conversion and shorter project cycles.
Sunway Construction Group Bhd (SunCon) is its preferred play, with a TP of RM9.50, while Gamuda’s record order book is offset by higher gearing and persistent free cash flow outflows. Its TP for Gamuda stands at RM4.10.
MBSB Research is also positive on the sector, maintaining a “positive” stance on the back of two growth engines – record DC awards and a gradually improving public infrastructure pipeline.
Its top picks are Gamuda, with a TP of RM5.60, SunCon at RM9.18, and Malayan Cement Bhd at RM10. The brokerage also has a “buy” call on IJM Corp Bhd with a TP of RM3.17.
For SunCon, the target is based on a higher 25 times PE multiple applied to its forecast 2027 earnings per share (EPS) of 36.7 sen.
For IJM, it uses 24.5 times forecast 2027 EPS of 12.9 sen.
Driven by DCs
The common thread among the three research houses is that private-sector investment, particularly related to DCs, remains the clearest near-term growth driver.
AmInvest Research calls DCs “the sector’s clearest structural growth driver”, pointing to Johor’s planned 2.5GW of capacity.
This represents about RM100bil of gross development expenditure through 2030, creating a sizeable multi-year pipeline for contractors. While tighter approvals and infrastructure constraints could make future capacity additions more disciplined, AmInvest Research sees this as managed growth rather than a reversal of the investment cycle.
Contractors with proven delivery capabilities and relationships with hyperscalers should remain well placed for subsequent phases and repeat awards.
MBSB Research expects DC job flows to improve in the second half of 2026, with up to six large-scale facilities worth RM1bil to RM2bil each potentially being finalised.
DC awards have already reached RM9.72bil in the first eight months of 2026, surpassing the whole of 2025.
The wider construction industry continues to expand, although growth is moderating.
The Statistics Department data shows construction sector growth easing to 6.6% year-on-year (y-o-y) in the second quarter of 2026 (2Q26) from 7.7% in 1Q26.
Growth remains broad-based, led by non-residential buildings and specialised construction activities, including DC core-and-shell and mechanical, electrical and plumbing fit-out works.
Still, the biggest question for investors is whether public construction spending can catch up.
UOBKH Research remains cautious.
It notes that total projects awarded in the first seven months of 2026 stand at about RM131bil, down 7% y-o-y, with only RM29bil, or 22%, coming from the government.
This compares with government projects accounting for about half of awarded projects in 2025.
It identifies several major projects already awarded, including the RM5.98bil Phase 1 of the Ulu Padas water supply scheme in Sabah, RM3.03bil Penang Light Rail Transit (LRT) Mutiara Line system packages and the RM430mil Tanah Rata bypass and federal road upgrade.
More projects on the way
More projects are expected, including the estimated RM4bil Perak-Penang Water Supply Scheme engineering, procurement, construction and commissioning (EPCC) contract, the roughly RM4bil Penang LRT Mutiara Line Segment 2, Johor’s RM7bil to RM10bil Elevated Autonomous Rapid Transit project and the RM700mil to RM900mil East Coast Rail Link-Port Klang extension.
But UOBKH Research warns that three factors could slow awards through 2H26 and 1H27: higher building material and diesel costs, changes in the political landscape and potential cuts in government expenditure to manage fuel subsidies.
“We are of the view that more fiscal constraint on government expenditure will potentially delay the rollout of certain mega projects, despite broad-based construction expenditure possibly remaining at high levels,” it says.
AmInvest Research similarly describes public infrastructure as “the missing leg of the current cycle”, noting that public civil engineering activity has plateaued at around RM11bil per quarter and declined 1.6% y-o-y in 1Q26.
MBSB Research, however, sees a healthier pipeline emerging.
It estimates RM12bil to RM14bil of visible public infrastructure awards in 2H26, led by the Penang LRT Mutiara Line CMC2, Langat 2 Phase 2 and Kerian Water EPCC.
The RM4bil to RM5bil Penang LRT CMC2 is targeted for November 2026, while Langat 2 Phase 2 is already in the procurement stage.
Kerian Water EPCC has also moved closer following the signing of a 40-year Bulk Water Supply Agreement in July, with Gamuda identified as the direct beneficiary.
Beyond 2026, MBSB Research sees further potential from the RM15bil estimated construction cost of Pan Borneo Highway Phase 2, the RM7.4bil Sabah-Sarawak Link Road Phase 2 and the RM31bil Mass Rapid Transit Line 3 project.
Sabah and Sarawak are also expected to remain a major focus, with RM93.9bil allocated to six less-developed states under the 13MP for roads, water, electricity and connectivity.
The RM430bil development expenditure envelope under the 13MP for 2026 to 2030, equivalent to RM86bil annually, provides another potential source of support.
MBSB Research notes that at least 70% of development expenditure is expected to prioritise basic development, while new rural roads in Sabah and Sarawak could receive further allocations under Budget 2027.
For investors, that makes the construction story less about betting on a broad-based public infrastructure boom and more about picking contractors with the right mix of private-sector exposure, balance-sheet strength and project visibility.
UOBKH Research puts it plainly: “For infrastructure projects, more patience is required for local contractors that may benefit, as the award of mega projects remain selective and could face a delay.”