Malaysian Construction Sector Poised for Significant Growth in 2H24
The construction sector in Malaysia is gearing up for a substantial acceleration in the second half of this year, propelled by the long-awaited rollout of major infrastructure projects. Following a robust performance in the first half of 2024, the sector is expected to surpass RM40 billion in contract awards this year, marking the highest level since 2016. This forecast is based on data from Hong Leong Investment Bank (HLIB) Research.
Strong Performance in 1H24
In the first half of 2024, domestic contract awards reached RM20.7 billion, representing a 41% increase year-on-year. Private sector projects played a significant role, accounting for up to 87% of the total award value, with data centre contracts leading the charge. By comparison, the total value of contract awards in 2023 was RM21.8 billion.
Key Projects in 2H24
HLIB Research anticipates that the second half of 2024 will see the award of several sizeable public infrastructure projects, including:
- Penang Light Rail Transit Project: RM10 billion
- Pan Borneo Highway Sabah Phase: RM14 billion
- Sabah-Sarawak Link Road Phase 2: RM7.4 billion
- Northern Coastal Sarawak Road
- Sabah Hydro and Water Projects
- Penang Airport Expansion
- Critical Flood Mitigation Projects
These projects are expected to significantly boost the sector’s performance and drive further development expenditure.
Sector Outlook and Investment Themes
HLIB Research has maintained an “overweight” recommendation on the construction sector, citing strong themes such as structural data centre investments and the reinvigoration of Johor. The research firm believes that the wave of investments into Malaysia will continue to encourage spending on critical infrastructure, including ports, airports, water infrastructure, highways, and railways.
The upcoming Johor Baru-Singapore special economic zone is anticipated to create more opportunities for the construction sector. Additionally, the potential development of the Johor elevated automated rapid transit system could further strengthen sector sentiment.
Major Players and Market Potential
The construction sector’s valuations at current levels suggest room for significant upside. HLIB Research identified key players such as Gamuda Bhd and Sunway Construction Group Bhd as well-positioned to benefit from the sector’s growth.
In the second quarter of 2024, the sector saw RM13.8 billion in contract awards, making it the second highest quarterly flow since the first quarter of 2009. This achievement is particularly notable given the absence of substantial infrastructure pump-priming.
Data Centre and Property Development Impact
The sector’s strong performance in the second quarter was driven by bullish property developer sentiment and substantial data centre contracts, which accounted for RM4 billion. Even after accounting for post-COVID cost inflation, the quarterly figures remain impressive and indicate a healthy job stream.
Conclusion
The Malaysian construction sector is on track for a significant growth trajectory in the second half of 2024, driven by major infrastructure projects and robust private sector investment. With contract awards expected to exceed RM40 billion, the sector is poised for its highest level of activity in nearly a decade. As the country continues to invest in critical infrastructure, the construction sector will play a pivotal role in supporting Malaysia’s economic development and growth.
