Revival of Domestic Infrastructure Projects. Anticipating a surge in domestic infrastructure development, we are affirmative that construction sector is poised for substantial growth, particularly with several shovel-ready projects on the horizon. Longanticipated projects such as the Mass Rapid Transit 3 (MRT3), Penang's Light Railway Transit (LRT), Flood Mitigation plan, proposed Trans-Borneo Railway, and the Subang Airport Regeneration Plan are expected to significantly contribute to the sector's expansion. Alongside the substantial development expenditure budget earmarked for East Malaysia, 2024 heralds promising advancements in the Southern region, positioning Johor as a burgeoning hub for construction activities. The upswing is driven by the revival of the high-speed rail (HSR) and potential light rail transit (LRT) lines projects, encompassing a span of approximately 30km length in and around Johor Bahru. The LRT lines would complement the ongoing Johor Bahru-Singapore Rapid Transit System Link (RTS Link), set to conclude by early 2027, with planned extensions reaching Senai International Airport in Kulai.
Fueled by Data Center Expansion. The accelerated growth of data center capacities in Malaysia, particularly in Johor, is presenting a transformative opportunity for the construction sector. A direct consequence of data center capacity constraints in Singapore paves the way for Johor to become an attractive alternative hub due to its proximity. With Johor already accounting for 3.2% of all data center facilities in Malaysia, featuring 33MW of existing and planned facilities and an anticipated RM17bn in new investments by 2024, the region is becoming a focal point for construction sector growth. Notably, Nvidia's commitment to develop USD4.3bn in artificial intelligence cloud and supercomputer infrastructure in Kulai, Johor, with the first phase set to be operational by mid-2024, underpin the data center boom in Johor, propelling construction companies into a dynamic era of growth and opportunity.
Growth in Renewable Energy. The National Energy Transition Roadmap (NETR) is actively driving progress in the renewable energy (RE) sector and this is set to serve as a catalyst for consistent revenue streams for construction companies. Within the NETR framework, 6 pivotal levers and 10 flagship catalyst projects have been identified to mitigate greenhouse gas emissions, encompassing initiatives namely the construction of solar parks, hybrid hydro-floating solar PV, and integrated RE zone. NETR creates an environment for construction companies’ portfolio expansion while embracing ecofriendly practices.
Maintain OVERWEIGHT. We are OVERWEIGHT on the sector fueled by domestic infrastructure resurgence, robust data center expansion and sustained growth in renewable energy. We reiterate our BUY call for Gamuda (TP: RM5.16) and AQRS (TP:RM0.49) with a HOLD call for Sunway Construction (TP:RM1.99).
Source: BIMB Securities Research - 11 Jan 2024
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