KUALA LUMPUR (Oct 16): Despite strong gains this year, construction stocks are “not yet ripe for profit-taking” as continuous project flow is expected through 1H2025, on the back of infrastructure and industrial developments, said RHB Investment Bank Research (RHB IB).

In a sector update on Wednesday, the research house pointed out that major projects, such as the Penang Light Rail Transit (LRT) which is set to break ground in December, and the Pan Borneo Highway Sabah Phase 1B, may keep investors on their toes.

“We believe that water-related infrastructure may bring new additional opportunities for contractors. 

“Projects include the Sungai Damansara flood mitigation project and the RM4 billion allocated for water management in Perak, which includes providing treated water to Penang,” RHB IB said.

Although the Bursa Malaysia Construction Index (BMCI) has climbed over 30% year-to-date (YTD), RHB IB believes there is still room for further gains, driven by robust developments in both water infrastructure and the industrial segment.

Touching on the industrial sub-sector, property transactions surged 23% year-on-year (y-o-y) to RM13.5 billion in 1H2024, while data centre projects are expected to contribute an additional RM29 billion to RM34 billion in construction value. 

On stocks strategy, the house prefers Gamuda Bhd (KL:GAMUDA) with a target price (TP) of RM9.79, Sunway Construction Group Bhd (KL:SUNCON) with a TP of RM5.50, and Kerjaya Prospek Group Bhd (KL:KERJAYA) with a TP of RM2.57, while it reiterated its “overweight” call on the sector.

Meanwhile, a new data centre in Delapan, Kedah, and several other projects are named as major catalysts for this growth.

“There is around 766.9MW (megawatt) of IT supply of DCs (data centres) committed in Malaysia, according to DC Byte, translating to RM29 (billion)-RM34 billion of estimated construction value, based on a construction cost of US$8.5m-US$10m (million) per MW in Malaysia,” RHB IB  added.

Other updates include the evaluation of feedback on MRT3 alignment post public inspection and the government’s decision on the Kuala Lumpur-Singapore High-Speed Rail by year-end, which could further stimulate activity in the sector.

At noon break on Wednesday, Gamuda’s share price was down one sen or 0.12% at RM8.19, valuing the group at RM23.10 billion, with trading volume totalling 48.17 billion shares, whereas Sunway Construction was down four sen or 0.88% at RM4.48, giving it a market capitalisation of RM5.81 billion, with 5.13 billion shares traded.

Meanwhile, Kerjaya Prospek’s share price was up one sen or 0.51%, valuing the group at RM2.50 billion, with trading volume totalling 4.1 billion shares.