KUALA LUMPUR, Oct 12 (The Edge Malaysia): Malaysia’s Budget 2026, with a total expenditure of RM419.2 billion, marks a strategic shift from a focus on “big-ticket” construction mega-projects to nurturing “big ideas” in technology, energy transition, and rakyat well-being, according to Kenanga Research.

One positive surprise, it noted, was the commitment to holistic push for the development and adoption of artificial intelligence or AI, including the cross-ministerial allocation of RM5.9 billion to strengthen research, development, commercialisation and innovation.

“Gamuda Bhd (KL:GAMUDA) in partnership with Dagang Nexchange Bhd (KL:DNEX) stand in our view as potential beneficiaries of the RM2 billion Sovereign AI Cloud project, given their partnership to offer air-gapped Google Distributed Cloud (GDC) services that comply with Malaysia’s data sovereignty requirements,” the research house said in a note issued on Saturday.

VSTECS Bhd (KL:VSTECS) and SNS Network Technology Bhd (KL:SNS) stand to gain from the anticipated rise in demand for ICT and software, alongside LGMS Bhd (KL:LGMS) for cybersecurity solutions, helped by some sweetener of tax deduction in Budget 2026 for MSMEs for AI and cybersecurity upskilling.

“Overall, the government will introduce the National AI Action Plan 2030. The overall holistic approach for the eco-system adoption push could also speed up the monetisation of large-language model developers (such as ILMU, by YTL AI Labs and Universiti Malaya), amid several others,” it said.

The budget also reinforces the National Semiconductor Strategy continuity, it said, as it outlined funding to ease long-standing bottlenecks in risk capital and prototyping for Malaysia’s fabless/design, IP, and advanced-packaging ambitions.

“We believe the 13 potential national champions highlighted by the government earlier will be the key berneficiary,” it said.

It identified some of them to be: Kelington Group Bhd (KL:KGB), Inari Amertron Bhd (KL:INARI), Carsem (a subsidiary of Malaysian Pacific Industries Bhd (KL:MPI)), Oppstar Bhd (KL:OPPSTAR), Pentamaster Corporation Bhd (KL:PENTA); Vitrox Corporation Bhd (KL:VITROX), Greatech Technology Bhd (KL:GREATEC), SkypeChip, Infinecs, and Experior.

The energy sector received strong policy signals, including the highly anticipated introduction of a carbon tax in 2026, initially targeting high-emitting sectors like iron, steel, and energy. “We are expecting a direct tax on emissions. How effective the government channels revenue from the tax will also be key. The amount to be collected is not yet disclosed for now — but we understand it is not scoped into the published 2026 revenue estimates,” Kenanga said.

In renewable energy, the sector continues to shine with the planned rollout of the LSS6 solar programme, valued around RM6 billion and expected to add about 2GW of capacity, it noted.

“Amid this growing pie, we like players which can command market share, and our sector recommendation remains Solarvest Holdings Bhd [KL:SLVEST], where CRESS [Corporate Green Energy Supply] will be a driver. Budget 2026 points to RM3.5b of CRESS demand already, and in our view could also rise over time,” Kenanga said.

The automotive sector, meanwhile, is set to see the end of the incentives for completely built-up (CBU) imported electric vehicles (EVs) come Jan 1, 2026, leading to a reinstatement of duties.

“A switch to more affordable fuel-efficient vehicles and absence of EV CBU incentives extension would benefit MBM Resources Bhd (KL:MBMR) and DRB-Hicom Bhd (KL:DRBHCOM) given their presence in the affordable segment. More so when a 100% excise duty exemption and 100% sales tax exemption will continue for the purchase of new national cars, namely Proton and Perodua, by taxi and private car rental owners,” it said.

It also noted a significant boost allocated to the tourism sector, with RM700 million earmarked for Visit Malaysia 2026, up from RM550 million. This, coupled with an additional RM1,000 income tax relief for domestic travel, is expected to benefit tourism proxies, including Genting Malaysia Bhd (KL:GENM). The mid-February distribution of the RM100 Sara cash aid may provide a temporary boost for value-focused retailers like Mr DIY Group Bhd (KL:MRDIY).

Kenanga’s overall sector view is positive on technology, automotive, utilities and renewable energy, and water. The research house maintains a neutral-to-mildly positive stance on others, including construction and property, due to the absence of new mega-project announcements and only incremental measures for property.

“For FY2026, the construction sector’s benefit is seen as neutral, amid a development expenditure that is projected to rise marginally to RM81 billion — still sizeable, but no new information was shed on the MRT3 nor was there colour on the Johor ART/LRT.

“What continues to be buoyant is in water projects, which could play to the benefits of Engtex Group Bhd (KL:ENGTEX) given its market share in pipes, amid an allocation in Budget 2026 for handling non-revenue water related matters. Separately, WCT Holdings Bhd (KL:WCT) and Kimlun Corporation Bhd (KL:KIMLUN) could benefit for new phases of the Pan Borneo and Sarawak-Sabah Link Road projects,” it noted.

The government has projected Brent crude to be at US$60-65 (RM253.27-274.38) per barrel — as opposed to Kenanga’s forecast of US$67 per barrel. “On a related note, the decline in dividends by Petronas in 2026 to RM20 billion from RM32 billion could ease pressure for Petronas’ cash flow but we don’t see this as translating to cheers for local upstream services sector players, given the Petros dispute is a larger determinant,” Kenanga said.

It advised for a tactical positioning post-budget, noting the historical tendency for the FBM KLCI to give back some grounds following the announcement. Its year-end KLCI target remains at 1,640 points.

— The Edge Malaysia