THE mechanical and electrical (M&E) sector faces growing pressure to deliver contracts profitably as data centre and electrical infrastructure investments expand order books.
In its latest ESG update dated Oct 27, Kenanga Research said workforce efficiency, skilled labour retention and subcontractor management would increasingly determine contractors’ execution capabilities and profitability.
A comparison of seven listed M&E players revealed a 2.5-fold gap in revenue per employee, ranging from RM600,000 to RM1.6 mil.
Despite higher revenue productivity, margins varied significantly. CBHB generated RM1.5 mil in revenue per employee and the highest gross profit (GP) per employee at RM500,000, supported by a 34% GP margin.
Sunlogy, meanwhile, recorded RM1.6 mil in revenue per employee but the lowest GP margin at 11%, translating into GP per employee of RM200,000.
Cheeding recorded the lowest revenue per employee at RM600,000 but the highest GP margin at 56%, highlighting how project mix, pricing and outsourcing arrangements can influence profitability.
Kenanga said subcontracted workers are generally excluded from reported employee headcounts, potentially overstating apparent productivity among contractors relying more heavily on outsourcing.
Differences in workforce classifications and employee turnover calculations also limit comparisons.
Workforce stability is another concern as projects become larger and more technically demanding. High turnover could raise recruitment and training costs, increase subcontractor reliance and delay project delivery.
However, the research house noted that more training does not necessarily translate into lower employee turnover.
Order books also do not guarantee stronger earnings. Jati recorded the highest outstanding order book per employee at RM5.2 mil, with RM710 mil in outstanding contracts equivalent to 3.6 times its 2025 revenue. Yet its GP margin was 14%, compared with CBHB’s 34%.
Kenanga said the ability to convert contracts into revenue without compromising margins would be a more meaningful measure of execution efficiency than workforce size alone.
The research house maintains its “Overweight” rating on the M&E sector, supported by sustained data centre investments and electrical infrastructure spending.
It named Keeming Group as its top pick, with an “Outperform” rating, citing growth opportunities in data centres and solar.
It also called for greater disclosure of employee retention, technical training and subcontractor reliance to help investors assess contractors’ capacity to deliver growing order books profitably.—Oct 27, 2026
Main image: University Of Bridgeport
