KUALA LUMPUR (April 4): Hong Leong Investment Bank (HLIB) has maintained its “overweight” rating on the construction sector and said first quarter of 2024 (1Q2024) domestic contract awards totalled RM6.96 billion, which is up 45% quarter on quarter (q-o-q) but down 3% year-on-year (y-o-y).

In a sector update on Thursday, the research house said contracts again were dominated by the private sector, which saw robust flows, notably from commercial and residential projects, while the data centre (DC) space contributed too.

“Going forward, we expect contract awards from several big ticket infrastructure projects to drive jobs higher in 2024.

“We maintain sector 'overweight' keeping to our thesis of contract awards growth driven by mega infra projects and supported by robust private sector job flows.

“Sector valuations remain undemanding against this positive backdrop.

HLIB’s top picks are Gamuda Bhd ("buy"; target price [TP]: RM6.11) and Sunway Construction Group Bhd ("buy"; TP: RM3.20).

The research house said for the remaining quarters of 2024, it looks forward to the rollout of big ticket infrastructure projects like Penang LRT (more than RM10 billion), Pan Borneo Sabah Phase 1B (RM15.7 billion), flood mitigation packages worth RM11.8 billion, Sabah-Sarawak Link Road (RM7.4 billion), LRT3 reinstatement (RM4.7 billion), KUTS-Green Line as well as water scheme projects.

“There are also other basic infrastructure projects to come, funded by the high level of development expenditure of RM90 billion.

“These projects should help drive contract flows in 2024 while pipeline from industrial projects and data centres remains highly robust — Johor has been touted as the fastest growing DC market in SEA region,” it said.