KUALA LUMPUR (July 17): Hong Leong Investment Bank (HLIB) Research maintained its 'overweight' rating of the construction sector, and said domestic contract awards jumped 41% year-on-year to RM20.7 billion in the first half of the year (1H2024), driven by data centre (DC) awards.

In a sector update on Wednesday, the research house foresees potential for awards acceleration in 2H2024, driven by long delayed big-ticket infrastructure projects.

It said positive sector sentiment could also come from the finalisation of the Johor-Singapore Special Economic Zone and Budget 2025, as well as structural DC and Johor reinvigoration themes.

HLIB said that contracts awarded in 1H2024 alone had almost matched the total awarded in 2023 (RM21.8 billion).

“The higher contract value [awarded] year-to-date was broad-based. The number of projects awarded was higher by 90% (1H2024: 97 contracts; 1H2023: 51 contracts).

“In fact, the second quarter (2Q2024) delivered RM13.8 billion in contracts, making it the second highest quarterly flow since 1Q2009 (commencement of HLIB's database compilation), only behind the record high in 1Q2016 (driven by the underground Mass Rapid Transit, Setiawangsa-Pantai Expressway, and Pan Borneo Highway or PBH Sarawak),” the research house said.

HLIB said in addition to DC-led flows from the private sector, 2H2024 could finally see sizeable public infrastructure projects coming to the fore.

“Several projects to be rolled out in the near term include the Penang Light Rail Transit (RM10 billion), PBH Sabah Phase 1B (RM14 billion), Sarawak-Sabah Link Road Phase 2 (RM7.4 billion), Northern Coastal Sarawak road, Sabah hydro and water, Penang airport expansion, and critical flood mitigation projects.

“In short, we are expecting roll-outs of development expenditure and off-balance sheet funded projects in 2H2024, after delays in 1H2024, which comes part and parcel with government projects.

“We believe the wave of investments into the country will continue to encourage development spending on critical enabling infrastructure like ports/airports, water infra, highways and railways,” it said.

The research house’s top picks are unchanged, namely Gamuda Bhd (KL:GAMUDA) with a 'buy' call and a target price (TP) of  RM9.08 a share, and Sunway Construction Group Bhd (KL:SUNCON) with a 'buy' rating and a TP of RM5.60.

https://www.theedgemarkets.com/node/719288