Positive Q2 earnings seen for listed construction companies

New Straits Times

23-06-2025

KUALA LUMPUR: Listed construction companies may see earnings rising in the second quarter (Q2) of 2025, after posting steady growths in Q1, industry observers said.
They, however, said while job fows may steadilly pick up, margins will remain under pressure in some cases.
Rakuten Trade Sdn Bhd equity research vice-president Thong Pak Leng said most companies delivered Q1 earnings that reflected stable progress on ongoing projects and effective cost management, despite a still-cautious operating environment.
One of the key outperformers during the quarter was Sunway Construction Group Bhd (SunCon).
The company stood out for its steady order book execution, strong project pipeline, and operational efficiency, Thong said.
Looking ahead, he expects job flows to gradually pick up, supported by the rollout of major infrastructure projects such as the estimated RM17 billion Penang Light Rail Transit (LRT).
However, he said the tangible impact on company earnings may only be seen further down the line.
"We could see progress recognition begin in late 2025 or early 2026. Earnings from these projects will likely come through in early 2026," he told Business Times.
Another industry analyst concurred that overall, most listed construction firms had met or slightly exceeded market expectations in Q1.
However, he noted that margins remained under pressure in some cases due to elevated material and labour costs.
"We saw that SunCon did well with solid execution and steady wins that kept them ahead. Gamuda Bhd also stood out, thanks to their overseas projects in Australia and Taiwan.
"The group's geographically diversified operations are paying off, providing a buffer against the slower pace of local job flows," he noted.
The analyst said the Penang LRT project provides clear visibility for the sector's medium-term pipeline, although actual disbursement and contract awards may only materialise meaningfully from late 2025.
CIMB Securities Sdn Bhd said the construction sector reported another steady set of results during the recently concluded Q1 reporting season.
"Among the construction stocks within our coverage, four reported results that met expectations, while IJM Corp Bhd outperformed."
The firm highlighted that none of the construction companies incurred any major provisions or impairments for their projects.
Overall, CIMB Securities maintained an "Overweight" call on the construction sector, and project calendar year 2025 earnings growth of 10 per cent year-on-year.
On a quarter-on-quarter basis, the firm expect sector earnings growth to remain on an upward trajectory in Q2, underpinned by higher construction site activities post the festive breaks in Q1..
Likewise, it said 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.
The firm expects the pace of job awards in the construction industry to gather momentum ahead of the 13th Malaysia Plan, which is set to be tabled in July.
Nevertheless, it said the expanded Sales and Service Tax scope could re-ignite near-term uncertainties concerning the margins of ongoing non-residential construction jobs of lower value.
"We reinstate IJM Corp as one of our top large-cap construction picks alongside Gamuda.
"IJM Corp is in the final stages of converting RM6 billion-RM8 billion worth of ongoing bids, and recently received the green light to proceed with the RM1.4 billion New Pantai Expressway extension," it noted.
Meanwhile, CIMB Securities said Gamuda remains on track to meet its end-2025 order book target of RM40 billion-RM45 billion, supported by around RM24 billion in high-conviction tenders.
These include up to six data centre-related bids, each valued at about RM2 billion.
For alpha plays, the firm highlighted Malaysian Resources Corporation Bhd (MRCB), which had secured RM5.6 billion worth of new jobs year to date.
It added that there is upside risk to MRCB's FY25 new order book target of RM6 billion, citing potential wins from the RM1 billion KL Sentral redevelopment and an active tender book of RM1.7 billion.
As for small-cap exposure, the firm pointed to Econpile Holdings Bhd, citing its potential to benefit from a reacceleration in larger-scale piling works.