This article first appeared in Capital, The Edge Malaysia Weekly on November 24, 2025 - November 30, 2025

THE Sabah election on Nov 29 comes just as a much larger structural question is unfolding — the state’s long-delayed 40% net revenue entitlement from Putrajaya.

After years of stop-start negotiations, both the federal and Sabah state governments have recently resumed talks to come to a workable formula under the Malaysia Agreement 1963 (MA63). Details remain scanty, but everyone, especially Sabahans, is waiting to see whether the state will finally secure a significantly higher share of federal revenue, whether through phased payments or a revised long-term fiscal arrangement.

Analysts generally view state elections as having little influence on the equity market beyond short-term volatility. But the 40% entitlement makes an altogether different catalyst, as greater fiscal autonomy and a bigger spending envelope could spur multi-year investments in infrastructure, logistics, utilities and social development for the state. If realised, the impact could reshape prospects for Sabah counters and that of companies with exposure to the state — from plantation and oil and gas (O&G) services to construction and consumer names.

“This is highly [probable] if the 40% entitlement is sustained and applied to resource/revenue streams that are currently sizeable,” BIMB Securities Sdn Bhd director of research Mohd Redza Abdul Rahman tells The Edge. “In the near term of one to three years, the most probable use of new fiscal capacity will be to accelerate projects already in the pipeline — such as the Pan-Borneo works, Sarawak-Sabah Link Road, grid upgrades, water works, airports — because these have procurement-readiness and federal alignment. The state’s capacity to co-fund and own projects can increase with bigger revenue streams.”

Tradeview Capital chief investment officer Nixon Wong cautions that the quantum, timing and execution pertaining to any structural shifts in Sabah remain uncertain, since the the federal government has not published detailed revenue by state, and that even Sabah officials say they lack the data to compute the exact 40%.

“Treat the 40% as a credible structural tailwind, but don’t [assume] the full constitutional maximum upfront as the base case. Focus on companies that have proven execution track records and strategic assets such as ports or logistics hubs that are benefiting from gradual improvements anyway. Treat the election as a volatility event, not the core thesis,” advises Wong.

Market experts whom The Edge spoke to expect that plantations and agribusinesses, O&G, construction and building materials as well as utilities and energy transition will be among the first sectors best positioned to benefit from higher state development expenditure.

BIMB’s Redza says: “[Planters] Hap Seng Plantations Holdings Bhd (KL:HSPLANT), IOI Corp Bhd (KL:IOICORP) and Genting Plantations Bhd (KL:GENP), which are integrated players with scale in East Sabah [with their own] mills, refineries and port access will gain from improved rural roads, logistics and downstream Lahad Datu Palm Oil Industrial Cluster (POIC) activity.

“For O&G and energy, Hibiscus Petroleum Bhd (KL:HIBISCS) (with its upstream exposure in North Sabah and Kinabalu production sharing contracts) as well as Malaysia Marine and Heavy Engineering Holdings Bhd (KL:MHB), Velesto Energy Bhd (KL:VELESTO), Dayang Enterprise Holdings Bhd (KL:DAYANG) and Dialog Group Bhd (KL:DIALOG) are service providers and fabricators that are likely to benefit from renewed exploration, [Petroliam Nasional Bhd’s] basin investments and increased offshore activity.”

In the construction and building materials sector, expectations are on Gamuda Bhd (KL:GAMUDA) for its large infrastructure exposure, thanks to major domestic contract clinches, including the 187.5mw Ulu Padas Hydroelectric Project in Sabah — a large-scale project with an estimated cost of RM4 billion — to be completed by Dec 31, 2030. Gamuda is developing the project as part of a joint venture — Upper Padas Power Sdn Bhd (UPPSB) — with Sabah Energy Corp and Kerjaya Kagum Hitech JV.

Mid-cap contractors and suppliers such as Sabahan construction firm Azam Jaya Bhd (KL:AZAMJAYA), which debuted on the Main Market last November, and other peninsula-based outfits such as TCS Group Holdings Bhd (KL:TCS), Bina Puri Holdings Bhd (KL:BPURI) and Kimlun Corp Bhd (KL:KIMLUN) also stand to be beneficiaries.

Notably, Tenaga Nasional Bhd (KL:TENAGA), the controlling shareholder of Sabah Electricity Sdn Bhd, stands to gain because of the former’s rural electrification work, solar programmes and potential cross-border trading plans. Petronas Gas Bhd (KL:PETGAS) stands to benefit from operating the Kimanis Gas Pipeline and associated power and processing facilities in the state.

Other potential gainers include consumer and tourism beneficiaries such as retail and small-ticket names 99 Speed Mart Retail Holdings Bhd (KL:99SMART), Sabah-based mineral water company Life Water Bhd (KL:LWSABAH) and fast-moving consumer goods player and logistics provider Kim Teck Cheong Consolidated Bhd (KL:KTC).

Hospitality real estate investment trusts could also gain from higher tourist flows and local consumption.

BIMB’s Redza notes that other sectors to watch include renewables, biomass and waste-to-energy (such as outfits dealing with biogas from plantations and small hydro), which are linked to plantations, estate players and power plants.

As for the transport and logistics sector, Suria Capital Holdings Bhd (KL:SURIA), is also seen as a possible beneficiary, thanks to its Sabah Ports operations and Sapangar Bay concession and recent tie-up with Dubai’s DP World.

From a valuation standpoint, Redza notes that the market has only partially priced in the prospect of higher state autonomy and spending. After all, larger names, especially those of utilities and major contractors, have already seen some rerating expectations reflected in their share prices, although this is often due to company-specific developments.

Redza explains that there is still meaningful upside for smaller Sabah-centric counters and companies with more indirect exposure such as ports, POIC-linked small and medium enterprises (SMEs), certain plantation players and local O&G service providers.

Looking at Sabahan counters, Azam Jaya and Life Water, which went public on Nov 11 and 13 last year, respectively, have outperformed their IPO prices of RM1 and 65 sen respectively, whereas steel player Colform Group Bhd (KL:COLFORM) (IPO price: 36 sen) has lagged despite the Sabah infrastructure story, as the global steel sector faces weaker demand and margin concerns.

On whether Sabah’s 40% revenue entitlement could materially improve fiscal flows and development of the state to lift Sabah-listed stocks, Wong says it can — “provided the funds are used for genuine deve­lop­ment and not just operating spending”.

But he cautions that Sabah’s relative underdevelopment and its reliance on tourism mean the state must “take a more holistic and sustainable view”, including providing predictable multi-year project pipelines that strengthen earnings visi­bility and state finances. This, he adds, would better support co-investment with the private sector.

Even so, it will take time before an outcome is reached, and when it is, proper and transparent execution in priority areas will be crucial for the extra revenue to have a meaningful impact on Sabahans’ lives.

Baker Tilly Malaysia managing partner Datuk Lock Peng Kuan tells The Edge that the next one to three years will focus on technical work — agreeing on the formula, clarifying net revenue components and determining how existing federal allocations fit in. “It is not as straightforward as assuming an amount and spending it immediately,” he notes.

Lock adds that if Sabah does receive additional resources, priorities should be the community’s social foundations, including connectivity, flood mitigation, power stability, digital access and water security.

“All these themes are not new, but the difference — if the 40% is implemented properly — is the ability to execute more effectively. It is not just about having more money but ensuring that the spending leads to real improvements in the way people live and work,” he says.

While details of Sabah’s 40% revenue share are still being worked out, Lock draws lessons from Sarawak’s autonomy deal.

“There are a few useful parallels from Sarawak’s experience in recent years,” he says, citing free tertiary education at state-owned universities, the launch of state carrier Air Borneo to boost connectivity, and Sarawak becoming the largest shareholder of Affin Bank Bhd (KL:AFFIN).

“This gives the state another lever to support development financing and SME activity, and eventual access of these SMEs to the capital market in a more targeted way.”

Lock suggests a similar approach for Sabah: prioritising social and community improvements such as water, power stability, internet and road connectivity; education and human capital to encourage local talent to return; and healthcare, leveraging existing hospitals and medical expertise.

“With further investment, Sabahans would not need to travel to Semenanjung as often for treatment, and Sabah itself could be positioned more deliberately as a healthcare tourism destination for the region,” he says.

“The message from Sarawak is that once you have more fiscal room, you can build a complete ecosystem: infrastructure plus human capital plus new growth sectors. Sabah has the same opportunity, if we get the fundamentals right.”

Lock stresses that any meaningful rerating of sectors and equities depends on translating the 40% entitlement into a clear formula, credible implementation timetable and visible project delivery with strong governance. “Without that, it remains a story on paper. With it, the investment case for Sabah over the medium term becomes much stronger.” 

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