CIMB Investment Bank Bhd (CIMB Securities) has maintained an OVERWEIGHT call on the construction sector, with Gamuda and IJM Corp as its top large-cap picks and MRCB as its top alpha play.

The sector's 4Q24 earnings performance remained weak, with the number of underperforming companies outpacing outperformers by three to one. IJM Corp's 9MFY3/25 results were broadly in line with expectations at 75% of full-year forecasts, while WCT's FY24 results fell short of both consensus and CIMB's estimates, posting a core net loss of RM32 million despite a 6% year-on-year (YoY) revenue increase.

Gamuda is expected to report a moderate year-on-year earnings improvement in 2QFY7/25, driven by its record-high order book of RM31.1 billion as of January 2025. Meanwhile, Econpile managed to turn a profit in 1HFY6/25, with a net profit of RM0.3 million compared to core net losses of RM13 million a year earlier. However, its results still fell short of expectations due to a 35% YoY contraction in revenue, affected by regulatory delays and project design changes.

RCB's FY24 core profit of RM64 million was 9% below CIMB Securities' forecast and 18% below consensus estimates, with its 4Q24 core profit declining 93% quarter-on-quarter (QoQ) to RM1 million. The group's revenue dropped 35% YoY, attributed to the completion of key property projects, asset disposals, and near completion of LRT 3 Phase 1 works.

Muhibbah Engineering stood out as a strong performer, surpassing expectations with a 54% QoQ surge in 4Q24 core profit to RM28 million. The company's share of associate profits, bolstered by its 21% stake in Cambodia Airports, nearly doubled YoY to RM119 million. Muhibbah declared a first and final dividend of 3 sen per share, marking its first payout in five years with a 4.5% yield. Based on a dividend payout ratio of 24–30%, CIMB Securities projects FY25–27F dividend yields of 3.5–5.3%.

The potential 25% hike in US steel and aluminium import tariffs is not expected to significantly impact domestic building material prices. However, CIMB noted that the planned increase in domestic electricity tariffs in July 2025 could pressure construction margins in the near term, as costs for key building materials such as rebars, wire rods, and aluminium extrusion products are expected to rise in 2H25. In the medium to long term, these increased costs are likely to be passed on through contract repricing.

The sector's earnings slowdown has been primarily attributed to delays in the rollout of major infrastructure projects in 2H24, leading to decelerating project billings. However, order flows have improved since early 2025, supported by key developments such as the Penang LRT and LRT 3 Phase 2. These projects are expected to drive a stronger earnings cycle in FY25F and FY26F.

CIMB Securities remains positive on the construction sector, citing an improving tender environment and strengthening order book visibility. It expects the ongoing recovery in contract awards to support earnings growth, with Gamuda, IJM Corp, and MRCB continuing to lead the sector.