RHB Research said it expects SimeProp’s earnings growth profile to change from 2026 to 2027 onwards.
PETALING JAYA: Sime Darby Property Bhd
(SimeProp) is poised to reap recurring income and also potentially enhance the value of its land bank in Elmina Business Park (EBP) from its second data centre expansion venture with Google-affiliated Pearl Computing Malaysia Sdn Bhd.
RHB Research said in a report: “We are upbeat about Google’s second investment for a data centre in EBP, which is larger in value and capacity than the first.”
The second facility is located near the first Google data centre, which is currently under construction and targeted for completion in early 2026.
Upon the completion of the second Google data centre in 2027, a 20-year lease valued at up to RM5.6bil will commence, and the lease comes with an option for renewal for two additional five-year terms.
The research house said it also expects SimeProp’s earnings growth profile to change from 2026 to 2027 onwards, adding that the journey ahead could be exciting.
“We expect a data centre fund to potentially be set up, and listing of a real estate investment trust (REIT) to be in the pipeline.
“We also do not rule out the possibility that SimeProp may acquire some industrial property to grow the size of its asset portfolio more quickly,” RHB Research said.
It noted the latest expansion stood as evidence of solid execution by SimeProp’s management as the second Google data centre came just six months after the first one was announced.
RHB Research estimated that the investment by Google for second centre could be worth RM4bil to RM5bil, as its expected capacity is around 200MW to 250MW, based on the size of the site and the value of the lease.
“Together with the RM1.5bil to RM2bil investment for the first phase of about 100MW, Google is investing a total of RM5.5bil to RM7bil in EBP alone.
“This is a boost of confidence for the growth prospects of EBP, and should entice more companies to set up their facilities in the business park,” RHB Research added.
RHB Research said, based on simple calculations, both data centres could generate RM380mil in lease income per year, and contribute around RM170mil to RM180mil to total net profit for SimeProp.
“Although SimeProp’s management has yet to provide details on its funding plan, we think the group’s balance sheet will be able to fund the capital expenditure for the facility,” the research house said.
RHB Research kept a “buy” call on the stock with a target price of RM2.33. It added SimeProp remained one of its top picks for the property sector.
TA Research, meanwhile, viewed SimeProp’s expansion in data centres positively as it strengthens the group’s investment and asset management portfolio while supporting its SHIFT25 strategy to grow recurring income.
The group also secures long-term leases with a global tech leader such as Google that will diversify its income base and ensure steady, visible cash flow over the long term.
“More importantly, Google’s continued investment also underscores SimeProp’s ability to deliver high-quality industrial and commercial property that meest international standards, further positioning EBP as a premier digital and industrial hub,” said TA Research in a note to clients yesterday.
The research house noted that forecast net profit margins for Singapore’s data centre REITs typically range between 50% and 60%.
“Assuming a 40% net margin to account for Malaysia’s corporate tax, we estimate that the new data centre will generate annual income of up to RM112mil,” said TA Research, which maintained a “buy” call on SimeProp with a target price of RM2.
CGS International Research (CGSI Research) said: “Our preliminary calculations suggest that the new asset could generate an internal rate of return (IRR) of about 8% and bring in additional return on net asset value per share of around 11 sen.
“This is based on broad assumptions of annual leasing revenue of RM280mil, capital expenditure of RM2.5bil, and an earnings before income tax, depreciation and amortisation margin of 80%,” the research house added.
In addition, SimeProp’s near-term outlook appears promising backed by the resilient sales and growing investment property.
“We believe the group is set to exceed its revised 2024 sales target forecast of RM3.5bil, having recorded RM3.2bil in new sales in the first nine months of this year,up 27% year-on-year,” said CGSI Research.
The research house reaffirmed its “add” call on the stock with an unchanged target price of RM1.94, pending further details on the new data centre.
