KUALA LUMPUR: Malaysia's construction sector is on track for record contract awards, driven by RM10 billion in data centre projects secured in the third quarter, according to Hong Leong Investment Bank Bhd (HLIB Research).
Analyst Brian Chin said domestic contract awards rose 75 per cent year-on-year to RM18.7 billion between July and September this year, bringing the nine-month total to RM46.4 billion, up 17 per cent year-on-year.
He said the sector could surpass its previous annual record of RM56 billion set in 2016, supported by a strong pipeline of data centre projects expected to be converted into contracts in the fourth quarter.
"With another quarter to go, we believe the sector is on track to close the year with a record award tally, surpassing the RM56 billion recorded in 2016.
"A healthy pipeline of daa centre opportunities remains ripe for conversion in the fourth quarter, which should drive a decent finish to the year," he said.
Among the notable domestic contract wins in the third quarter were three hyperscale data centre packages in Port Dickson secured by Gamuda Bhd, with a combined value of RM5.3 billion.
The MRCB-Theta Edge joint venture secured the RM3 billion Penang Light Rail Transit (LRT) systems package, while Kerjaya Prospek Group Bhd secured its maiden data centre contract worth RM858 million.
Overseas projects also contributed to contractors' order books. Kelington Group Bhd secured a RM1.8 billion contract for turnkey hookup services at a semiconductor wafer fabrication facility in India, while Gamuda won a RM2.3 billion contract for the first stage of the Mortlake Energy Hub in Victoria, Australia.
Chin said a healthy pipeline of data centre opportunities remained available for conversion in the fourth quarter, supporting expectations of a strong year-end finish.
Other potential awards include the Northern Perak water project and the second construction management and coordination (CMC2) package for the Penang LRT.
In 2027, the rollout of the Corporate Renewable Energy Supply Scheme (CRESS) is expected to provide another source of contract flows, particularly for renewable energy infrastructure and mechanical and electrical works.
"The reduced system access charge of 14 sen per kilowatt-hour, coupled with the end-2028 commercial operation date deadline, should spur demand for green power, especially as newly approved data centre projects are now subject to a 30 per cent renewable energy requirement," Chin said.
Beyond data centres and renewable energy, the Johor electric autonomous rapid transit (e-ART) project could become another key driver of contract awards in 2027.
However, the timing of the Mass Rapid Transit 3 rollout remains uncertain.
HLIB Research maintained its "Overweight" rating on the construction sector, citing sustained data centre development and an emerging pipeline of semiconductor facilities that should support order books for large-cap contractors and mechanical and electrical engineering specialists.
The firm also expects renewable energy projects to generate additional opportunities as Malaysia's green power infrastructure expands.
Gamuda remains its preferred large-cap construction pick, with a "Buy" call and target price of RM5.75, while Inta Bina Holdings Bhd is its preferred small-cap pick, also rated "Buy", with a target price of 76 sen.
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