Malaysia’s Construction Upcycle: Opportunities Across the Field

Malaysia’s Construction Upcycle: Opportunities Across the Field

By Pankaj Kumar
Managing Director, Datametrics Research and Information Centre Sdn Bhd

Malaysia’s construction sector is enjoying something it has not experienced consistently for many years: sustained momentum.

Construction sector’s economic output as measured by Gross Domestic Product (“GDP”) at current prices reached RM86.9 billion in 2025, up 11.3% from the preceding year, and the momentum has carried into 2026. In the first half of this year, construction sector’s GDP reached RM45.6 billion, representing year-on-year (y-o-y) growth of 8.5%.

More importantly, this is increasingly looking like a broad investment cycle. Construction activity spans across all sub-segments and this include residential and commercial developments, industrial facilities, infrastructure, utilities, healthcare and other non-residential projects. Private-sector activity has also become an increasingly important part of the story.

For investors, the significance is that the construction theme is no longer confined to a handful of mega-project beneficiaries. The largest contractors remain important bellwethers, but the breadth of activity means there is also room to examine the next tier of companies within the sector.

What the Leaders Tell Us

The achievements of the sector’s larger names show how powerful this cycle has become. Sunway Construction Group Berhad, for example, had secured RM6.86 billion of new orders by August this year while its active tender book is now close to RM14.2bil Its outstanding order book has reached about RM10.5 billion, an all-time high, with data-centre and other advanced-technology projects becoming an increasingly important source of work.

The wider YTL group offers another illustration of where capital expenditure is flowing. YTL Power International Berhad has continued to expand its digital-infrastructure footprint in Johor, where its Kulai data-centre campus has grown rapidly and it recently announced plans with JLand Group for a new gigawatt-scale campus at Sedenak Tech Park. These are not simply company-specific developments; they point to the scale of investment taking place in Malaysia’s industrial and digital economy.

Data centres are only one part of the picture. Healthcare, housing, industrial facilities, utilities and transport-related developments are also generating work. The lesson from the larger groups is therefore less about chasing a particular stock and more about recognising that the construction pipeline is deep enough to create opportunities across different market-capitalisation bands.

Looking Beyond the Big Contractors

The same principle applies further down the market-capitalisation spectrum, where investors can find companies that are benefiting from the broader construction cycle but may not receive the same attention as the sector’s largest contractors. Here, the focus should be on companies with a combination of visible order books, improving financial performance and exposure to resilient areas of construction demand.

Pesona Metro Holdings Bhd is one example. Its outstanding construction order book has grown to approximately RM2.2 billion following a RM247.5 million contract awarded in July to construct three private hospital blocks in Setia Alam. This provides the company with substantial visibility over future construction activity and should keep its construction operations well occupied for years to come. At the same time, the company is already seeing the benefits of stronger project activity, with revenue for the first six months of FY2026 rising 39.2% y-o-y to RM447.9 million, while net profit increased 56.7% to RM26.4 million.

The company also has other attributes that make it worth watching. As at 30 June 2026, Pesona Metro had RM109.7 million in cash and deposits with licensed financial institutions, alongside RM653.9 million in current assets. While the Group also carries borrowings, its liquidity provides some financial flexibility as it works through its growing project pipeline.

For investors, the appeal is not limited to construction earnings alone. Pesona Metro has also maintained a track record of dividend payments, with an interim dividend of 1.40 sen per share for FY2025, compared with final dividends of 0.75 sen for FY2024 and 0.50 sen for FY2023. This gives shareholders another potential source of returns beyond capital appreciation and demonstrates that the company is also returning value to shareholders as its earnings grow.

Its acquisition of a 51% stake in property developer Gaya Kuasa Sdn Bhd in 2024 created a second significant earnings pillar. The flagship REN Residensi development has a gross development value of approximately RM810 million and has recorded encouraging take-up.

The impact is already visible. Property development has become a substantial contributor to group revenue and earnings during the first half of FY2026, providing diversification from the traditionally lower-margin construction business. However, a large order book should not be viewed as an automatic indicator of future returns.

Investors still need to assess the quality and margins of secured contracts, project execution, working-capital requirements and cash conversion. The ability to translate order-book growth into sustainable earnings and cash flow ultimately matters more than the headline size of the pipeline.

Execution Still Separates Winners from the Rest

The sector’s outlook is encouraging, but investors should remain selective. Labour and material costs, subcontractor performance, project delays, working-capital requirements and competitive tendering can all erode construction margins. Companies expanding into property or other adjacent businesses also take on different operating risks.

This is why the current cycle should be viewed as an opportunity set rather than a blanket buy signal. Investors need to watch margins, cash conversion cycle, balance-sheet discipline, project execution and the ability to replenish their order books without sacrificing returns.

Malaysia’s construction upcycle is therefore bigger than any single company. The large contractors may capture the headlines and mega projects, but a sustained and broad-based investment cycle can also lift capable smaller players. For investors willing to look beyond the biggest names, the opportunity lies in identifying companies that can turn unusually strong industry conditions into durable earnings.

— end of opinion article —

Pankaj Kumar is Managing Director of Datametrics Research and Information Centre Sdn Bhd. The
views expressed are his own. This article is for general information purposes and should not be
construed as a recommendation to buy or sell any securities.

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