Share
- The research firm, which noted that the sector had just reported a set of steady results for the first quarter, is expecting the pace of job awards to gather momentum ahead of the 13th Malaysia Plan that is set to be tabled in July.
KUALA LUMPUR (June 19): The construction sector is expected to see its earnings growth remaining on an upward trajectory in the second quarter, while the order book environment is set to further improve heading into the second half of 2025, with the gradual roll-out of major public infrastructure projects.
CIMB Securities is anticipating 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 said this in a note on Wednesday, in which it kept its 'overweight' call on the sector with a projected 10% earnings growth for 2025.
The research firm, which noted that the sector had just reported a set of steady results for the first quarter, is expecting the pace of job awards to gather momentum ahead of the 13th Malaysia Plan that is set to be tabled in July.
A key highlight is the Penang LRT project, the largest infrastructure initiative under the Madani administration. Citing a report by The Edge Malaysia weekly, CIMB Securities noted that the systems and rolling stock component, valued at no more than RM3.5 billion, attracted at least seven bidders—including listed players such as Gamuda Bhd (KL:GAMUDA), YTL Corp Bhd (KL:YTL), Malaysian Resources Corp Bhd (KL:MRCB) and WCT Holdings Bhd (KL:WCT)—by the close of tenders on June 16.
Further, the civil works contract for the Silicon Island to Komtar route, led by the SRS Consortium (headed by Gamuda), may see a cost reduction to RM7.8 billion-RM8 billion following a value engineering review. Nevertheless, CIMB Securities expects Gamuda to secure an additional RM3 billion in related works, potentially offsetting any slight reduction in its initial RM5 billion civil works share.
SST burden likely to be passed on to clients
Meanwhile, CIMB Securities expects the impact of the expanded sales and service tax (SST) scope, which now includes the construction sector with a 6% rate levied on construction services starting July 1 on contracts valued above RM1.5 million, to be minimal overall, as contractors are likely to pass on the new tax charges to clients. Housing projects and public amenities attached to such contracts are exempted, as well as business-to-business (B2B) transactions.
Nevertheless, despite the general expectation of cost pass-through, there is still uncertainty over whether contractors will be subject to an 8% service tax on construction machinery or equipment leased from businesses earning more than RM500,000 annually. Additionally, a sales tax could be levied on certain construction machinery purchases, it said.
CIMB Securities believes B2B exemptions will be provided to ensure that the SST is applied only at a single stage, to prevent double taxation on existing contracts. "For ongoing government-related contracts, we do not expect contractors to face any key issues in repricing their contracts to adjust for the SST levels," it said.
However, the impact of the revised SST on existing non-residential private-sector contracts is less straightforward. A significant portion of project costs, about 40% to 50%, may be affected, potentially leading to financial strain—particularly on lower-value projects with thin profit margins—if contractors are unable to pass the added tax burden to clients with weaker financial capacity.
While most basic construction materials remain tax-exempt, new levies on steel producers could have an indirect ripple effect throughout the construction supply chain. That said, the research house expects future project bids to factor in any resulting increases in steel prices.
CIMB Securities' top picks for the sector are Gamuda and IJM Corp Bhd (KL:IJM). IJM, it noted, had outperformed its forecast with core profits rising 4% year-on-year to RM526 million in the first quarter—driven by a surge in construction pre-tax profits due to increased site activities.
Does Malaysia have what it takes to become a Blue Zone, marked by health and longevity? Download a copy of EdgeProp’s Blueprint for Wellness to check out townships that are paving the path towards that.
