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Construction Sector: A Safe Haven Amid Tariffs?
$Construction (LIST22974.MY)$ $IJM (3336.MY)$ $GAMUDA (5398.MY)$ $SUNCON (5263.MY)$ $FTSE Bursa Malaysia KLCI Index (.KLSE.MY)$
Construction sector in Malaysia is likely to have less affected by US tariffs, as it mainly serves the domestic market.
Major Construction Company like IJM, GAMUDA, SUNCON has a very strong order books. which will offer stability, though indirect cost pressures from tariffs may exist.
Why Construction Sector?
In the current world of US tariffs, the construction sector stands out as a safer place to invest. US tariffs, which are taxes on imports into the US, mainly impact export-oriented industries. However, the construction sector in Malaysia is largely domestic-focused, meaning it serves the local market rather than relying on exports to the US. This makes it less vulnerable to trade disruptions caused by tariffs.
How does Order Books provide Stability?
In construction, a healthy order book provides stability by representing a pipeline of future projects, reducing uncertainty and allowing for more efficient resource allocation. It essentially indicates a firm's workload and potential profitability for a specified period, providing a degree of confidence in the company's future operations.
What potential risks could exist?
While the sector is insulated from direct tariff impacts, there could be indirect effects, such as higher costs for imported materials like steel or cement if global prices rise due to supply chain disruptions. However, these effects are generally considered minimal for construction compared to export-driven sectors.
Comprehensive Analysis: Construction Sector Resilience to US Tariffs and Investment Safety
This comprehensive analysis examines the construction sector’s resilience to US tariffs, focusing on its domestic orientation and the role of order books in investment safety. Given the recent 10% imposition of US tariffs on Malaysian goods, effective April 9, 2025. Investing in construction companies like Gamuda, IJM, and SunCon likely to have less affected by US tariffs.
Construction Sector’s Domestic Orientation
Research indicates that the construction sector in Malaysia is fundamentally domestic-facing, relying on local demand for infrastructure, residential, and commercial projects rather than exports. According to MIDF Amanah Investment Bank Bhd, as reported on April 7, 2025, “construction is largely insulated from trade-related shocks, apart from potential cost pressures BERNAMA - RECIPROCAL TARIFF IMPACT ON MALAYSIA'S CONSTRUCTION SECTOR IS MINIMAL -- MIDF. This insulation stems from the sector’s minimal direct revenue exposure to the US market, unlike sectors such as automotive or consumer electronics.
The Star’s analysis on April 6, 2025, further supports this, noting that “domestic-oriented industries such as services, construction, domestic sales driven manufacturing and agriculture sector will be relatively insulated from the tariffs shock as they apply only to physical exported goods” Trump’s tariffs: What is the impact on Malaysia? | The Star. This suggests that construction companies, serving internal markets, are less vulnerable to the tariff-induced trade disruptions affecting Malaysia’s export performance.
Indirect Effects and Cost Pressures
While direct impacts are minimal, indirect effects could arise through input inflation. MIDF notes that “tariffs may indirectly affect the sector via input inflation, especially if global steel or cement prices rise due to supply chain distortions” BERNAMA - RECIPROCAL TARIFF IMPACT ON MALAYSIA'S CONSTRUCTION SECTOR IS MINIMAL -- MIDF. For instance, US tariffs on steel and aluminum, as seen in 2018, increased domestic production but raised costs for downstream industries, including construction How Tariffs May Impact the Construction Industry in 2025 | Dodge Construction Network. However, given Malaysia’s reliance on local and regional material sourcing, these effects are likely limited compared to export-oriented sectors.
Order Books as Indicators of Stability
Order books, representing the value of secured contracts, are critical for assessing investment safety in construction. A larger order book indicates a stable revenue pipeline, reducing execution risk.
Construction Sector: A Safe Haven Amid Tariffs?
Gamuda’s significantly larger order book suggests greater stability, but all three companies benefit from domestic demand, aligning with the sector’s tariff resilience.
Order Book Updates for Gamuda, IJM, and SunCon that announced but Awaiting Quarterly Confirmation in 2025
Gamuda appears to have secured a significant new order in 2025 for the Penang LRT – Mutiara Line Phase 1, with Gamuda’s share valued at RM5.0 billion. This was announced in January 2025 and is part of their ongoing efforts to expand their infrastructure portfolio.
SunCon seems to have secured a RM1.5 billion contract for the Rapid Transit System Transit-Oriented Development (RTS TOD) at Bukit Chagar, Johor, with the announcement made on March 5, 2025. This project involves construction works for transit infrastructure, enhancing their order book for the year.
As of April 10, 2025, IJM Corporation Bhd has yet to announce any new order book additions this year, with its last reported order book standing at RM6.5 billion as of August 2024. However, a potential opportunity looms on the horizon.The Penang International Airport (PIA) expansion, CIMB Securities Sdn Bhd estimates this contract, which includes the construction and renovation of the main terminal building, at RM1.2 billion, with bidding slated for May 2025 and completion targeted for 2027.
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Authored by 慧投必财 from MOOMOO
kawan, Baca the Segmental report for more detail but more or less for the cost of sales will be affected. LOL. for sure not serious as goods or production line like small value assets. It is major in the Construction and Property divisions.