2024 domestic contract awards totalled RM44.2bn (+103% YoY) the highest tally since 2016. Sequentially, there was higher value of DC contracts and CGPP projects. We maintain OVERWEIGHT on the sector anticipating a sustained year in project flows anchored by conventional DCs & AI-DCs, infra rollout and buoyant private sector sentiments. Gamuda (BUY; TP: RM5.50) remains our sector top pick due to diversified project exposure.

Highest since 2016. Domestic contract awards in 4Q24 came in at RM12.3bn (+10% QoQ, +156% YoY) taking 2024 value awarded to RM44.2bn, increasing by 103% vs SPLY. This is the highest tally since 2016 and second highest since 2009. For context, 2016 numbers were achieved driven by MRT2 underground, SPE and PBH Sarawak. The 2024 figure was within our base case expectation of >RM40bn, but falling short of our blue sky case of >RM50bn. In our view, the only disappointment was absence of Penang LRT Segment 1 package in 2024 which was the key for not breaching the RM50bn mark. Apart from strong DCs contribution in 2024 (RM7.5bn), also driving the strong number was the bullish property developer sentiment resulting in high residential/commercial development contracts with the Johor market in particular, experiencing a noticeable resurgence. On the infra side, there was also better job flows seen from roads, water, public housing and hospitals, but these were largely overshadowed by private sector contribution. On a sequential basis, we observe the 10% growth was driven by rebound in DC jobs as well as CGPP EPCC contracts.

Notable contracts. Notable contract wins in 4Q24 include (i) Ulu Padas hydro project to Gamuda-Conlay (RM3.05bn), (ii) WP33 from PBH Sabah to Ireka (RM1.07bn) and (iii) WP32 from PBH Sabah to TCS (RM611.3m).

Foreign jobs. There were three contracts awarded in 4Q24 being: (i) Xizhi Donghu MRT to Gamuda-MiTAC-Donghu JV – RM4.3bn (ii) EPC for Goulburn River solar – RM1.8bn and (iii) piling contracts in SG to Pintaras – RM175m.

2025 pipeline looks decent. Apart from recent award of Penang LRT Segment 1 contract worth RM8.3bn, we anticipate subcontract packages in the coming months (HLIBe: RM3-4bn) while award timeline for systems package is expected in 3Q25. Meanwhile the civil contract award for Segment 2 could still come in late 4Q25, in our view. Although the recent release of the Interim Final Rule on AI hardware by the Biden administration could potentially dent the AI-DC pipeline (assuming VEU status granted), conventional DC pipeline should remain fairly intact, in our view. We also remain positive on continuing ex. DC private sector momentum in Johor (spurred by SEZ, RTS and potential LRT/ART) and Penang (NSS, healthcare, LRT) which should also continue to support rollout of residential/commercial developments as well as industrial developments. While there is sustained focus on smaller scale infra (roads & water) for bigger ticket infra, we hope to see Penang airport expansion awards, progress on Penang-Perak water project (RM5bn), while Johor should benefit from tangible developments on its LRT/ART proposal. Our view on the MRT3 and KL-SG HSR projects are unchanged – award ready stage for civil packages likely beyond 2025 if green lighted. Development focus in Sabah & Sarawak continues to be healthy with various infra projects, but have very selective impact on construction stocks – e.g. for PBH Sabah 1B (RM15.7bn) only three of 19 packages benefitted listed-cos. PFI projects worth RM9bn announced in Budget-25 should translate to opportunities for well capitalised contractors, however we reckon not all will start construction in 2025. Some notable projects in the PFI category include NPE 2.0 (RM1.5bn), West Ipoh Span Expressway (RM6.2bn, turnkey contractor appointed), West Coast Expressway Southern Alignment, Juru-Sungai Dua Elevated Expressway (RM2.7bn) and Sultan Aminah Hospital 2.

Maintain OVERWEIGHT. We retain our OVERWEIGHT sector call anticipating another year of sustained job flows anchored by conventional DC & AI-DCs, infra rollout and buoyant private sector sentiments. Valuations at current levels still provide room for upside. Our top pick is Gamuda (BUY; TP: RM5.50). We remain positive on the stock on the back of: (i) orderbook upcycle from high certainty pipeline (ii) differentiated DC strategy and (iii) growing leverage into the Australian RE space. Key sector downside risks worth highlighting: (i) restrictive quotas on AI hardware (ii) higher-than-expected EPF contribution for foreign workers and (iii) punitive trade tariffs.

Source: Hong Leong Investment Bank Research - 16 Jan 2025