KUALA LUMPUR (July 17): Malaysian construction stocks surged on Wednesday to their highest in more than six years, as investors bet that contract awards will pick up, spurred by public infrastructure and private projects.

The Bursa Malaysia Construction Index, which tracks 49 stocks in the sector, rose 3.5% to its highest since February 2018.

Top movers Gamuda Bhd (KL:GAMUDA) climbed 30 sen or nearly 4% to close the day at RM8.25, while IJM Corp Bhd (KL:IJM) gained 21 sen or more than 6% to RM3.69.

The outlook for the construction industry remains positive as private-sector jobs surge and major public infrastructure projects, such as the next phases of the mass rapid transit and the Pan Borneo Highway projects, are rolled out, said Rakuten Trade, which has an ‘overweight’ call on the sector.

The promising prospects have driven significant market interest, reflecting the government's push for infrastructure development and private-sector expansion, Rakuten added. The research house’s top picks for the sector are Gamuda, Sunway Construction Group Bhd (KL:SUNCON), Kerjaya Prospek Group Bhd (KL:KERJAYA), WCT Holdings Bhd (KL:WCT), and Kimlun Corp Bhd (KL:KIMLUN).

Sunway Construction closed up 10 sen or 2.1% to RM4.94, while Kerjaya Prospek ended up eight sen or 3.9% to RM2.15. WCT rose seven sen or 6% to RM1.23, while Kimlun advanced three sen or 1.9% to RM1.65.

Construction stocks have broadly outperformed other sectors, largely fuelled by optimism about the government's roll-out of major infrastructure projects. A slew of highly lucrative jobs, particularly to build data centres, has also boosted shares of select companies, including Gamuda and Sunway Construction.

In the first half of 2024, contract awards totalled RM88.92 billion from over 7,000 projects, according to data from the Construction Industry Development Board. Private sector projects account for 75% of the contracts awarded.

In terms of the type of projects, non-residential contracts accounted for 73% of the awards while infrastructure made up about 16% of the jobs. The rest were for residential and social amenities.

For the next six months, “sizeable public infrastructure projects [are] coming to the fore” in addition to data centre projects, Hong Leong Investment Bank (HLIB) said.

The wave of investments into the country will continue to encourage development spending on “critical enabling infrastructure”, such as ports, airports, water, highways and railways, the research house said and maintained its ‘overweight’ rating on the sector.

“Investors’ preference for the picks and shovels trade for the [data centre] boom should continue to drive sector multiple reratings,” HLIB noted. “Valuations at current levels still provide room for upside.” For strategy, the research house recommended Gamuda and Sunway Construction.