Kuala Lumpur: Hong Leong Investment Bank (HLIB) is optimistic about the construction sector driven by the rollout of various infrastructure projects nationwide.
According to its research note today, this includes the Penang LRT which is worth more than RM10 billion, Pan Borneo Sabah Phase 1B (RM15.7 billion), flood mitigation packages (RM11.8 billion), Sabah-Sarawak Link Road (RM7.4 billion), the reinstatement of LRT3 (RM4.7 billion), the Kuching Urban Transportation System-Green Line, and water-related projects.
“There are also other basic infrastructure projects, funded by a development expenditure of about RM90 billion,” it said.
These projects should help drive contract flows in 2024. The research house said industrial projects and the construction of data centres remain highly robust with Johor being touted as the fastest-growing data centre market in Southeast Asia.
“We anticipate further developments on the Johor LRT (RM20 billion) and the Kuala Lumpur-Singapore high-speed rail in the coming months.
“The Johor LRT serves as a critical dispersal system for the incoming rapid transit system (RTS) link project between Johor Bahru and Singapore which will be fully operational in 2027,” it added.
HLIB said it is overweight on the sector and expects a strong private sector job flow from data centres, factories/warehouses and commercial/residential projects to drive contract awards beyond RM20 billion per annum.
The research firm said sector valuations remain reasonable, trading at price-to-earnings and price-to-book multiples of 14.1 times and 0.9 times, respectively.
Its top picks are Gamuda Bhd (target price of RM6.11) and Sunway Construction Group Bhd (TP: RM3.20).
Gamuda’s valuation is attractive and it is in a strong position to tender for local infrastructure projects while it sees mid-cap stock SunCon as a proxy for coming infrastructure project rollouts, the research house said.
