No mega projects, no problem

CONSTRUCTION stocks saw early morning dips on Monday this week as the government refrained from announcing new mega infrastructure projects in Budget 2025, with even well-known players such as IJM Corp Bhd, Gamuda Bhd and Malaysian Resources Corp Bhd (MRCB) being affected.

Thankfully, though, most of these counters recovered as the week went on and sentiment improved despite the initial concerns, as industry observers are also keeping their optimism intact.

Analysts generally believe the sector would have enough fuel to propel it towards a positive 2025 from the ongoing and announced assignments, which of course would include big-ticket items such as the light rail transit (LRT) and airport expansion jobs in Penang.

CIMB Securities construction analyst Mak Hoy Ken, for one, considers Budget 2025 to be fairly expansionary in nature from a development standpoint.

He notes that the total amount of public investments would touch RM120bil through additional injection of funds from public-private joint ventures worth RM9bil, and another RM25bil in direct investments from government-linked investment companies.

“We also draw comfort from the fact that there have been no deferments of major ongoing projects.

“To be sure, 2,000 new projects have been approved at an estimated cost of RM58.6bil under the Fifth Rolling Plan, which is in keeping with the government’s fiscal consolidation objectives, with the federal fiscal deficit projected to decline to 3.8% in 2025 against an estimated 4.3% in 2024,” he says.

Although there were no specific announcements on new mega infrastructure initiatives, Mak is confident that Budget 2025 has reaffirmed the government’s commitment towards several mega projects. The Fifth Rolling Plan represents the final year of the 12th Malaysia Plan, that runs from 2021 to 2025.

He believes that the core focus of the budget is on basic infrastructure, utilities and industrial hub projects, and to bridge the infrastructure gap between the peninsula and the Bornean states.

Additionally, he says: “We were also reassured by the fact that several fresh cornerstone projects would be carried out under the public-private partnership (PPP) Master Plan 2030.

“Besides, the removal of petrol subsidies for RON95 may free up fresh capital for the government to kick-start new public infrastructure projects, or as seed money/financial guarantees for projects under the PPP umbrella.”

Mak tells StarBiz 7 that the much-discussed mass rapid transit three or MRT3 project is in the latter group, one which may require the administration to recalibrate its fiscal position after the petrol price rationalisation, and other revenue-enhancing measures, before getting started on them.

Aside from the Penang LRT and Penang International Airport (PIA) jobs, the analyst says other standout projects are the Sarawak-Sabah Link Road, the RM4bil Sg Perak Raw Water Distribution project and four PPP-based highways.

Mak believes Gamuda will emerge as the biggest winner here, as it is expected to crystallise up to RM5bil worth of contracts under the Mutiara Line of the RM10bil Penang LRT project, via its 60% stake in SRS Consortium Sdn Bhd.

“Given its select strength in undertaking large-scale water infrastructure works, we also surmise that Gamuda would be a credible candidate to take up the water project in Perak, which is slated to start in 2025.

“As for off-budget mandates, the group is poised to secure another RM5bil worth of jobs from the Ulu Padas Hydroelectric scheme in Sabah,” he projects.

Crucially, Mak says the knock-on impact from the planned rationalisation of petrol subsidies and proposed hikes in the minimum wage and foreign worker levies would be minimal on the local infrastructure supply chain. This is because he is expecting contractors and suppliers of building materials to offset any subsequent increases in logistics/transportation costs by repricing their contracts.

“Furthermore, our channel checks reveal that most of the foreign construction workers are already earning in excess of the proposed revision in the minimum wage. They earn more than RM2,000, inclusive of overtime allowances,” he points out.

In general, he is overall positive on the industry, reiterating his “overweight” recommendation on the construction sector.

After being largely supported by private mandates in the first half of 2025, Mak is anticipating a step-up in the rollout of large-scale public infrastructure projects from the final quarter of this year, starting with the two big-ticket projects up north, namely the PIA extension and the Penang LRT.

For stock choices, he is keeping Gamuda as his top large-cap pick; MRCB for alpha play; and Econpile Holdings Bhd within the small-cap space.

Seasoned analyst Vincent Lau, who is head of equity sales at Rakuten Trade, echoes Mak’s sentiment on the construction industry, although he acknowledges that some investors are concerned about the lack of new infrastructure projects.

“But the ongoing projects are ensuring that the sector remains in good stead, the government is not stopping or deferring those, and I suspect the Sarawak theme play could also be coming into play after the state’s recent activities,” he says.

Lau is of the view that the sector will still prove to be a net beneficiary of the latest budget, which has seen the government allocating RM86bil for development expenditure, telling StarBiz 7 that the industry should still perform “reasonably well” in 2025.

Reflecting the feelings of Mak and Lau, an investor familiar with the sector reckons that Malaysia is not in any urgent need of more mega projects, adding that the industry is buoyant at the moment and does not actually require further stimulus.