Malaysia's construction sector set for execution-led growth in 2027

KUALA LUMPUR: Malaysia's construction sector is likely to enter 2027 on an execution-led growth path, with major infrastructure and data centre projects already providing a multi-year pipeline of contracts.

Apex Securities Bhd said the 2027 Budget, scheduled to be tabled on Oct 9, is unlikely to introduce major new stimulus for the construction sector.

Instead, the sector's key drivers are expected to be contract awards, tender outcomes and funding progress for projects already in the pipeline.

It maintained its "Overweight" call on the sector, citing potential developments including the award of the Penang Light Rail Transit (LRT) contract package and the finalisation of the Johor Bahru East Coast Rail Transit (E-ART) project.

Other supporting factors include stabilising input costs, improving property activity and continued investment in hyperscale data centres.

Apex Securities said the award of the LRT Civil Main Contract 2 (CMC2), expected in November, and the potential finalisation of E-ART by the end of 2026 would come after the 2027 Budget tabling.

The budget is likely to offer supportive commentary, while actual contract developments are expected to materialise in the following weeks.

"Taken together, these developments reinforce our view that 2027 will be a year of execution rather than new announcements for the construction sector," it said in a note.

The firm added that Gamuda Bhd's incumbent position on CMC1 and its tunnelling track record should strengthen its prospects for CMC2 and the Mass Rapid Transit 3 (MRT3) project.

However, the six-way contest for CMC2 and MRT3's staggered timeline, with land acquisition extending into late 2026 and tenders into 2027, mean that the conversion of potential contracts into secured orders will be gradual.

Any further delays would pose a key risk to earnings visibility rather than signal a change in the underlying demand outlook, Apex Securities said.

It viewed data centres as a more sustainable long-term growth driver, with much of the project pipeline already supported by signed electricity supply agreements.

With 3.8 gigawatts of committed capacity yet to be built and an estimated RM76 billion to RM95 billion in remaining contract value concentrated in Johor and the Klang Valley, the firm said the sector had a substantial pool of projects independent of the public infrastructure cycle.

"This should partly offset any near-term disappointment if MRT3 or E-ART timelines slip further," it said, adding that IJM Corp Bhd and Kerjaya Prospek Group Bhd are well-positioned to secure larger civil, shell-and-core and fit-out packages.

Meanwhile, ISF Industries Bhd and Southern Score Builders Bhd offer exposure to industrialised building systems and structural works, while HSS Engineers Bhd stands to benefit from engineering consultancy and project management work.

On labour costs, the firm said the 2027 Budget could include an increase in the RM1,700 minimum wage to as much as RM2,000.

Such a move would be in line with the government's efforts to narrow the gap with the RM3,100 living wage benchmark adopted by government-linked investment companies and government-linked companies.

It said any increase would add to construction costs, alongside higher Employees Provident Fund contributions for foreign workers, particularly affecting labour-intensive and fixed-price contracts.

Larger contractors with greater scale, automation and adoption of industrialised building systems should be better positioned to absorb the impact, it added.