Construction Sector To See Data Centre Contracts Award Upswing In 2H -- HLIB
KUALA LUMPUR, July 11 (Bernama) -- Malaysia’s construction sector is forecast to see a data centre (DC) award cycle in the second half of the year, driven by multiple contract decisions on tenders submitted in the first half of 2025 (1H 2025), according to Hong Leong Investment Bank Bhd (HLIB).
In a research note today, HLIB noted that five multi-billion ringgit tenders have been submitted for a United States (US)-based hyperscaler.
A hyperscaler is a large-scale cloud service provider offering cloud computing and data services to businesses on a massive scale.
“For the data centre segment, we take a ‘big is better’ view, anticipating further inroads to be made by the sector’s big three -- Gamuda Bhd, Sunway Construction Group Bhd, and IJM Corporation Bhd.
“Riding on competitive advantages such as strong balance sheets, proven track records in safety and execution, and integrated corporate structures that leverage their own building materials supply chains and bundling capabilities, including power and water infrastructure,” HLIB said.
Meanwhile, the investment bank pointed out that recent news regarding a potential restriction on artificial intelligence chip exports to Malaysia is a concern, but remains unconfirmed and lacks actionable details.
“In our view, Malaysian contractors are reliant on the Western hyperscaler names for sizable DC jobs, thus mitigating uncertainties to a certain extent – to this end, exemptions might be possible and remain our base case,” it added.
Apart from data centre projects, HLIB also expects 2H 2025 to see increased activity from the Penang Light Rail Transit project, particularly through subcontracts and systems packages.
Meanwhile, sizable infrastructure developments in Sabah and Sarawak, such as the Sarawak-Sabah Link Road and the Northern Coastal Highway, are expected to begin materialising.
As for the commercial segment, including residential developments situated on commercial land plots, HLIB stated that the lack of clarity regarding the treatment of sales and service tax (SST) could weigh on opportunities in the third quarter of 2025, as developers may defer project launches until the tax implications become clearer.
Additionally, HLIB said the recent removal of the SST exemption for the construction sector, from zero per cent to six per cent, should generally be manageable, as most contract forms provide for cost adjustments arising from changes in law.
Meanwhile, the continued exemption for government and residential projects will narrow the range of exposed developments mainly to non-residential construction, which accounts for 28 per cent of total construction work value in 2024.
“Nevertheless, these projects are adequately covered by contract clauses, in our view. We see limited impact on the data centre segment, considering the use of International Federation of Consulting Engineers (FIDIC)-style contracts, while insatiable demand for capacity could help mitigate the impact of higher build costs,” HLIB added.
-- BERNAMA
