Kuala lumpur: Kenanga Investment Bank Bhd remains bullish on the construction sector, given persistent demand for data centres, underpinned by continued capital expenditure from major technology (tech) firms.
According to BERNAMA News Agency, the investment bank stated that after a sluggish start to the year driven by concerns over the United States’ (US) artificial intelligence (AI) diffusion policies, sentiment in the construction sector rebounded strongly in the second quarter (2Q) of 2025. This resurgence was buoyed by renewed confidence as global tech giants ramped up data centre investments.
Earlier in the first quarter of 2025, concerns over the US AI diffusion rules had cast a shadow on Malaysia’s data centre development outlook, triggering a heavy sell-off in construction stocks. However, Kenanga Investment remains optimistic that the construction sector will continue its upcycle into the second half of 2025, supported by a robust pipeline of data centre roll-outs and impending public infrastructure projects.
Kenanga Investment noted that although the MRT3 timeline remains uncertain, several key projects are progressing. These include the Penang LRT Mutiara Line Packages 2 and 3, Penang Airport expansion, Phase 2 of the Pan Borneo Highway, the Sabah-Sarawak Link Road, the Subang Airport redevelopment plan, and the Johor LRT/Autonomous Rapid Transit (ART).
The high-profile KL-Singapore High-Speed Rail remains a medium-term catalyst for growth. Beyond data centres, industrial developments such as semiconductor foundries will continue to support private sector growth. Kenanga Investment maintains its assumption of average annual contract awards at RM180 billion for 2024-2026.
The Construction Industry Development Board reported that RM75.5 billion in main contractor construction contracts had already been awarded as of the end of May 2025, compared to RM226.5 billion in total awards for 2024. Construction players have set ambitious job replenishment targets for 2025, which, if achieved, could offer further upside to target prices. Kenanga Investment maintains its ‘overweight’ call on the sector.