Overview of Malaysia’s Construction Sector in 2025

Malaysia’s construction sector has faced a tumultuous start to 2025, following a robust 2024 where the construction index surged an impressive 79.6%. However, the sector experienced a challenging 12% retracement due to the United States’ AI chip export restrictions, triggering concerns over the Malaysian data center (DC) industry. Despite these headwinds, the sector remains buoyed by a substantial pipeline of domestic infrastructure projects and multi-year high order books.

Key Themes and Sector Outlook

• Malaysia is classified as a Tier 2 country under the U.S.’ AI chip export restrictions, limiting imports to 50,000 GPUs over two years and capping DC operators’ computing capacity at 7%.
• This policy has caused a selloff in the market, but potential exists for a reversal or softening of these measures during the 120-day comment period.
• Valuations have seen mean reversion, creating appealing capital upside opportunities for companies with minimal DC exposure.
• The sector’s growth is supported by selective mega projects such as Penang LRT, Johor ART, Sabah Pan Borneo Highway, MRT3, and other expansions.

UOB Kay Hian maintains an “OVERWEIGHT” recommendation for the sector, with Gamuda, IJM, and Kerjaya Prospek Group identified as top picks.

Deep Dive: Company-Specific Analysis

Gamuda Berhad (Gamuda)

Recommendation: BUY

Target Price: RM5.55 (30.9% upside)

Gamuda boasts a resilient order book of RM37 billion, with an order book cover ratio of 3.3x. While its exposure to the data center industry is limited to 7% of its total order book, the company remains diversified through numerous mega projects, including the Penang Light Rail Transit (LRT) and Pan Borneo Highway. Its forecasted FY25 profit before tax (PBT) is RM1.6 billion, with only 11% derived from DC-related projects, dropping to 3% by FY26. This reduces its vulnerability to U.S. export restrictions. Gamuda continues to be a standout player due to its diverse portfolio and strong execution capabilities.

Sunway Construction Group (SunCon)

Recommendation: HOLD

Target Price: RM3.67 (1.1% upside)

SunCon faces significant exposure to the data center sector, with 54% of its current order book and 40% of its 2025 PBT tied to DC projects. Despite this, its total outstanding order book stands at RM7.1 billion, with an order book cover ratio of 1.8x. Although SunCon is well-positioned in rail-related projects and other mega initiatives, the high dependency on DC projects necessitates caution given the current regulatory uncertainties. Its FY25 forecasted PBT is RM362.7 million, with 40% derived from DC-related pipelines.

IJM Corporation Berhad (IJM)

Recommendation: BUY

Target Price: RM3.25 (25.0% upside)

IJM Corporation has a robust order book of RM11.3 billion, translating to an impressive order book cover ratio of 4.9x. Its exposure to DC projects is relatively small at 5% of the total order book and 5-6% of PBT for FY25-26. IJM is a key potential beneficiary of upcoming mega projects like the Sabah Pan Borneo Highway and MRT3. The company remains a strong contender, supported by its diversified portfolio and minimal reliance on DC projects.

Kerjaya Prospek Group (Kerjaya)

Recommendation: BUY

Target Price: RM2.54 (16.0% upside)

Kerjaya stands out with no exposure to data center projects, focusing entirely on non-DC growth avenues. Its total outstanding order book is RM4.2 billion, with a cover ratio of 2.3x. The company has consistently demonstrated strong execution capabilities, making it a favored pick for investors seeking stability and growth in the construction sector.

WCT Holdings (WCT)

Recommendation: HOLD

Target Price: RM0.84 (-0.6% downside)

WCT has an order book of RM2.9 billion and an order book cover ratio of 2.4x. It has no direct exposure to the data center industry, a positive amidst current uncertainties. However, its relatively smaller scale and limited upside potential warrant a HOLD recommendation.

Malaysian Resources Corporation Berhad (MRCB)

Recommendation: BUY

Target Price: RM0.62 (26.5% upside)

MRCB has a substantial order book of RM26.1 billion, with no exposure to the DC sector. Its diversified portfolio includes the Penang Light Rail Transit and other mega infrastructure projects. With an order book cover ratio of 4.2x, MRCB is well-positioned to capitalize on upcoming opportunities in the sector.

Gabungan AQRS (GBGAQRS)

Recommendation: HOLD

Target Price: RM0.31 (14.8% upside)

With an order book of RM400 million and an order book cover ratio of 1.2x, GBGAQRS has no exposure to DC projects. While its smaller scale limits growth prospects, the company benefits from focusing on domestic infrastructure projects.

Sector Challenges and Opportunities

Despite concerns over U.S. AI chip restrictions and fuel subsidy rationalization, Malaysia’s construction sector remains on a growth trajectory. The quarterly value of construction works completed rose to RM41.1 billion in 3Q24, marking an 11th consecutive quarter of growth. Upcoming mega projects and the resilience of market leaders like Gamuda and IJM Corporation present significant opportunities for investors.