Budget 2027 Outlook: MBSB Research Predicts Mildly Expansionary Focus on Infrastructure and AI Adoption

The formulation of Budget 2027 occurs against a backdrop of heightened uncertainty. The ongoing geopolitical conflict in the Middle East, particularly the escalation involving the US, Israel, and Iran, has introduced significant downside risks to the global economy. These include volatile energy prices, supply-chain disruptions, and renewed inflationary pressures. For Malaysia, a net exporter of oil and gas but also an importer of refined products and technology, this creates a complex policy environment. The government must balance the need for fiscal consolidation, reducing the deficit and managing debt, with the imperative to protect households from cost-of-living shocks and accelerate development spending to sustain growth.

MBSB Research argues that the success of Budget 2027 should not be measured by the sheer number of new initiatives announced, but by the efficiency of their implementation. Key metrics for evaluation include the speed at which approved programs move into procurement and construction, the extent to which investment incentives foster local skills and intellectual property, and whether development spending translates into measurable productivity gains. Crucially, any household protection measures must be designed without reversing the structural fiscal reforms undertaken in previous years.

The Engine of Visible Growth

In this context, MBSB identifies the construction sector as offering the clearest and most direct transmission mechanism from budget allocations to corporate earnings. The emphasis is expected to remain on projects with high visibility and immediate social benefit. These include critical infrastructure such as flood mitigation systems, water treatment facilities, road networks, public transport expansions, hospitals, and schools. Such projects not only create jobs but also enhance the long-term competitiveness of the economy.

Regional equity is also a key theme. Sabah and Sarawak are expected to receive meaningful allocations to address historical infrastructure gaps and support their role in the national energy transition. Additionally, the development of the Johor-Singapore Special Economic Zone (JS-SEZ) is likely to drive a new wave of project flows, requiring significant investment in connectivity and industrial facilities.

MBSB highlights several listed companies well-positioned to benefit from these trends:

• Large Infrastructure Players: Gamuda Bhd, IJM Corp Bhd, and Sunway Construction Group Bhd are favored for their ability to secure and execute complex, large-scale infrastructure packages. Their strong order books and regional diversification provide a buffer against domestic volatility.

• Transport and Urban Infrastructure: Malaysian Resources Corp Bhd (MRCB) is seen as a primary beneficiary of urban renewal and transport-related projects, particularly in the Klang Valley and Johor.

• Building Materials: Malayan Cement Bhd serves as a direct proxy for increased construction activity, benefiting from both public and private sector demand.

• Regional Exposure: Cahya Mata Sarawak Bhd is highlighted for its leverage to construction momentum in Sarawak, particularly in energy and infrastructure projects.

Powering the Digital Economy: Utilities and Renewables

The rapid expansion of Malaysia’s semiconductor, industrial, and data center pipeline has created an urgent bottleneck: power. Substantial investment is required in electricity generation, transmission, grid stability, water capacity, and renewable energy to support this growth. While much of this spending may occur through private investment or linked companies rather than direct federal development expenditure, the budget is expected to provide supportive policies and incentives.

MBSB expects Budget 2027 to support grid upgrades, battery storage solutions, large-scale solar initiatives, and energy-efficiency programs. Tenaga Nasional Bhd (TNB) is identified as the principal listed beneficiary of higher grid and transmission investments, given its monopoly on national power distribution. Meanwhile, companies like Pekat Group Bhd and Samaiden Group Bhd are expected to gain from opportunities in solar and energy storage, driven by corporate renewable-energy procurement mandates.

The research house advises selectivity in data-center-related stocks, favoring companies with secured power capacity, credible customer contracts, and visible project execution over those with merely thematic exposure. Electrical equipment and cable companies are also expected to benefit from the wider electrification cycle, as industries upgrade their infrastructure to meet higher energy demands.

AI and Technology: From Hype to Commercialization

MBSB views artificial intelligence (AI) as a critical secondary theme for Budget 2027, marking a policy shift from mere data-center construction to actual AI adoption, commercialization, and sovereign digital infrastructure. The government is expected to introduce measures that encourage the integration of AI into the broader economy, particularly among small and medium enterprises (SMEs).

Potential measures include matching grants or tax deductions for SMEs adopting AI and automation, support for cloud and cybersecurity expenditure, funding for AI-related skills development, and financing for chip design, advanced packaging, and research and development. This approach aims to move Malaysia up the value chain, from assembly and testing to design and innovation.

The research house emphasizes that investable exposure lies with companies possessing commercially relevant capabilities rather than those benefiting only from thematic association. Potential beneficiaries include:

• Semiconductor and Equipment: Pentamaster Corp Bhd, Greatech Technology Bhd, Frontken Corp Bhd, Inari Amertron Bhd, and Vitrox Corporation Bhd are well-positioned to benefit from increased capital expenditure in the semiconductor sector.

• Chip Design: Oppstar Bhd is highlighted for its focus on local integrated-circuit design, a high-value segment of the semiconductor value chain.

A Prudent Path Forward

Ultimately, MBSB Research cautions that the actual impact of Budget 2027 will depend on the scale, design, and implementation of the announced measures. In a year defined by external volatility, the government’s ability to deliver visible, productivity-enhancing projects while maintaining fiscal discipline will be the true measure of its economic stewardship.

For investors, the strategy is clear: follow the money into tangible infrastructure and proven technology enablers. Construction firms with strong orderbooks and execution track records offer the safest bet, while utilities and selected technology companies provide exposure to the long-term themes of digitalization and energy transition. However, remaining wary of speculative themes and focusing on companies with strong fundamentals and clear revenue visibility will be key to navigating the uncertainties of the coming year.