Malaysia construction sector set for boost before 13MP

KUALA LUMPUR: Malaysia's construction sector is expected to see an uptick in job awards ahead of the 13th Malaysia Plan (13MP), which is scheduled for tabling next month, CIMB Securities said.
The firm added that the order book environment for local contractors is gradually improving as news flow on major public infrastructure projects picks up heading into the second half of this year.
It noted that the focus now is on the RM17 billion Penang Light Rail Transit (LRT), the largest infrastructure project under the current administration.
The system and rolling stock component, worth RM3.5 billion, received bids from several local and international companies, including Gamuda Bhd, YTL Corp Bhd, Malaysian Resources Corp Bhd and WCT Holdings Bhd.
CIMB Securities said that the civil works for the Penang LRT might be reduced by between 4.0 per cent and 6.0 per cent, from RM8 billion to RM7.8 billion, after a value engineering exercise.
"However, we foresee minimal downside for Gamuda as it is poised to clinch additional works worth RM3 billion under the Penang LRT, which would more than compensate for any marginal cuts to its original share of civil works worth RM5 billion," the firm said.
CIMB Securities maintained its "overweight" call on the sector and projected earnings growth of 10 per cent year-on-year for 2025.
On a quarterly basis, the firm expects sector earnings growth to remain on an upward trajectory in the second quarter of 2025, supported by higher construction site activities after the festive breaks in the first quarter.
"Likewise, order book visibility is improving alongside the gradual rollout of big-ticket public projects and the potential award of up to six large-scale data centre facilities worth about RM2 billion each over the next two to three quarters," it added.
CIMB Securities pointed out that while the new Sales and Service Tax (SST) regime is expected to have only a marginal impact on the construction industry, it could still affect low-value non-residential projects secured on thin margins.
The firm estimated that about 40 per cent to 50 per cent of total project cost could be subject to SST levies.
It said this could add cost pressure to low-value non-residential projects won on thin margins, especially if contractors cannot pass on the extra SST charges to financially weaker clients.
It added that most basic construction materials like cement, steel, and aggregates will remain tax-exempt, as the revised SST affects only eight out of 400 building material categories.
"However, we highlight that the additional SST-related levies to be imposed on steel producers may have an indirect, cascading impact on the construction supply chain, about 63 per cent of total domestic consumption, although new contract bids would be recalibrated for any subsequent hikes in steel prices," CIMB Securities said.

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