Building optimism 

THE construction and property industries, always a prominent sector on the local exchange next to banking, always comes into the spotlight whenever the yearly budget approaches.

It is understandable, given that the government will underline the amount of funds to be allocated for some mega projects, while putting some on the backburner for at least another year.

For some investors, the construction sector does appear to have an element of cyclicality to it, although others may argue that there are many players within the segment with strong fundamentals, whether or not projects get the go-ahead.

Group chief executive and managing director IJM Corp Bhd Datuk Lee Chun Fai sees structural drivers for the continued expansion of the sector, especially with a strong private sector demand for data centres and industrial buildings.

He tells StarBiz 7 that this makes the industry less dependent on the fiscal cycle.

“Analysts are expecting Malaysia’s infrastructure build-out to stay above trend through to 2030 as the country accelerates digital infrastructure, transport links and climate-resilient water projects.

“Malaysia also has strong domestic construction capacity in the financial, technical and delivery aspects, which means major projects can be executed largely by local players,” he says.

More importantly, Lee says there is also medium-term public investment in the domestic construction scene. Under the current 12th Malaysia Plan, the government has allocated RM400bil in development expenditure, the highest on record.

“Major public projects like the Mass Rapid Transit 3 and the Penang Mutiara Light Rail Transit will inject further stimulus,” he says.

Despite the apparent optimism, Lee believes execution and financing timing remain critical. The sector’s structural opportunities will only translate into lasting growth if projects are delivered on schedule and funding is well-structured.

Elaborating on potential banana skins, Lee says one of the key challenges lies in the high-speed delivery demands of industrial buildings, particularly data centres.

Using his own group’s portfolio as an example, he says: “Our recent RM1.4bil Johor data centre project must be completed within 13 months, requiring an average turnover of RM100mil per month; and as such only contractors with strong financial and execution capability can meet such expectations.

“We also leverage our internal supply capability and work with multiple approved suppliers early in project design to reduce vulnerability to price swings or supply challenges.”

In recent times, he says, clients are demanding shorter construction periods, and the ability to meet those timelines has become critical.

Lee further points out that building material costs are stabilising, giving better visibility and predictability for margins, for companies like IJM which is prioritising larger, more complex projects.

“This reduces pricing pressure and supports higher-quality outcomes, delivered on time and within budget,” he says.

Mak Hoy Ken, an experienced analyst with CIMB Securities Research, believes there are multiple layers to the renewed interest in construction. He points out that it could have been triggered by selective buying on construction names ahead of the Budget 2026 announcement next Friday.

“However, orderbook tailwinds are also emerging from a few large-scale data centre tenders that could be realised by year-end. The government’s measured rollout of petrol subsidies may open up more room for the emergence of public-private partnership (PPP) projects involving renewable energy and highways,” he tells StarBiz 7.

For instance, Mak says state-backed Permodalan Negeri Selangor Bhd (PNSB) has joined hands with IJM and Lim Seong Hai Capital Bhd to undertake road infrastructure projects within the Integrated Development Region in South Selangor corridor.

In addition, he observes that IJM is also working with PNSB, Yayasan Selangor and SD Guthrie Bhd to realise the development of an Edu-Technology Park and Food Security Hub in Carey Island.

“Meanwhile, Gamuda Bhd is exploring solar energy and battery storage projects with combined cumulative capacity of 2.7GW under the Corporate Renewable Energy Supply Scheme programme via separate tie ups with Gentari and SD Guthrie.

“In Sabah, Gamuda is also leading a consortium to construct and own the 188MW Ulu Padas hydroelectric project, which will also include a water supply scheme,” notes Mak.

Furthermore, he says Malaysian Resources Corp Bhd is firmly involved in the redevelopment of Shah Alam Stadium, which is central to Kompleks Sukan Shah Alam, worth RM2.9bil, and expansion of KL Sentral on a RM1bil budget.

Econpile Holdings Bhd also stands to gain from over RM1bil worth of piling-related opportunities, if the proposed Sungai Klang Link Highway takes off, he says.

“Likewise, interest in Malaysian contractors has also been propped up by the upcoming state elections in Sabah and Sarawak; with the Naim-Gamuda joint-venture bagging a package of the Northern Coastal Highway worth RM1bil (Limbang section) in August.

A spokesperson for another local construction firm, however, feels the sector’s rebound is mainly cyclical, with the potential to become structural if policy and funding choices line up.

She says much of the recent rebound reflects the timing of large government rollouts such as transport corridors, long-delayed highways, as well as state development projects and a rebound in private property activity after the lockdowns.

“It could become structural if the government sustains elevated infrastructure capital expenditure over several budgets or channels more projects to long-life concession models.

“We need to watch for budget allocations across multiple years (not just one-off top-ups), multi-year PPP contracts, progress on big projects actually entering procurement and construction, and private sector landbank and launch plans,” she remarks.

However, she feels the sector faces a number of potential headwinds, foremost among them being the labour and skills gap.

“A shortage of skilled workers and supervisors, and reliance on migrant labour complicates planning and quality,” she says.

She suggests that Malaysian builders move to prefabrication or modular construction and more mechanisation to reduce labour dependence.

“Investing in project management software and upskilling site managers and the utilisation of staged payment milestones and performance bonds to protect cashflow will also enhance efficiency,” the spokesperson tells StarBiz 7.

She also believes that Malaysia’s fiscal space should prioritise selective large projects rather than resort to indiscriminate spending.

PPPs, she says, can stretch public capacity and transfer some construction/operational risks to the private sector, although these would in turn require bankable contracts, transparent risk allocation, and viable revenue streams such as tolls and availability payments.

IJM’s Lee concurs, saying sustainable infrastructure growth will require a mix of public funding, private capital and hybrid models.

CIMB Securities Research’s Mak, while having outlined projects that various industry players are working on, remains more guarded on the overall outlook of the construction sector.

“We are maintaining a ‘neutral’ view as uncertainties over the expanded sales and services tax and persistent cost pressures has dented buying sentiment,” he explains.