More aggressive rollout of DC jobs in the offing

PETALING JAYA: The construction and materials sector is expected to record more positive share price performances backed by a second wave of data centre (DC) contracts, stronger earnings delivery and reinvigoration of government projects under the 13th Malaysian Plan.

CGS International (CGSI) Research said the KL Construction Index had recorded two strong years in 2023 and 2024, followed by a decline of about 4% due to a softer equity market, tariff challenges, artificial intelligence (AI) diffusion concerns, and implementation of the sales and service tax on construction services.

The research house, which recently met with contractors, consultants and subcontractors in the DC value chain, said the second DC wave could be more aggressive than the first. “The one common factor they all noted was that large hyperscalers are in the second phase of rollout in Malaysia due to fears of being left behind in the AI race,” it said.

CGSI Research said the momentum of awards in the DC space might pick up with its conviction underpinned by the government’s shift towards managing critical resources like electricity and water and an incrementally higher DC tender book for contractors with a broadening customer base.

It cited the opening of more DC tenders for Google-affiliated company Pearl Computing, US hyperscalers and Chinese DC players landbanking in the Klang Valley, the opening of Microsoft tenders in Johor as well as continuing strong enquiries for HSS Engineers Bhd, which has eight DC projects.

The research house maintained its “overweight” rating on the sector due to visible DC contract flows. Gamuda Bhd remained its top sector pick with a RM7.30 target price (TP), as a result of its exposure to four large infrastructure markets namely Malaysia, Australia, Taiwan and Singapore.

Other companies include IJM Corp Bhd and Sunway Construction Group Bhd with a TP of RM3.50 and RM7.30, respectively.