PETALING JAYA: The United States (US) government’s potential restrictions on artificial intelligence (AI) chip exports would have minimal impact on the existing data centre (DC ) contracts of Malaysian contractors at this point, says CIMB Securities Research.
It was reported early this week that the Joe Biden administration's plans to introduce new export restrictions on AI chips under a three-tiered system by country.
In a note to clients providing an initial assessment on the potential impact from US AI chip restrictions, CIMB said most of the clients of Malaysian construction companies are either multinational technology companies or global hyperscale operators.
“For construction-related stocks under our coverage, Sunway (through 65% -owned Sunway Construction Group Bhd
) has the highest exposure to DC contracts at RM3.9bil, or 54% of its outstanding order book."
For Gamuda Bhd and IJM Corp Bhd, the unbilled portion of their DC order books is estimated at RM2.5bil (7% of total) and RM0.2bil ( 2% of total), respectively.
Outside its coverage, the research firm said Mitrajaya Holdings Bhd won a RM87mil contract to undertake foundation works for the NEXTDC KL1 DC project in Petaling Jaya, while Gadang Holdings Bhd bagged a RM280mil contract under TM's Klang Valley DC Block 2. Both the contracts were awarded in April 2024.
“Most importantly, we note that ongoing DC work orders are still progressing, although lingering uncertainties over the US government’s future stance on AI chip exports may temporarily cloud the outlook for DC-related builds,” it added.
Similarly, CIMB said that the “actual impact on the property sector is also currently fairly insignificant” as most of the DC-related ventures are still at the preparatory stage with minimal capital expenditure (capex) spent and are backed by multinational technology companies or hyperscalers.
For instance, Sime Darby Property Bhd will lease a hyperscale DC campus at Elmina Park to Google under a 20-year lease worth up to RM2bil with the groundbreaking ceremony taking place in early Oct 2024.
More recently, the property group entered into another build-and- lease agreement worth up to RM5.6bil with the same tenant at Elmina Business Park Phase 2.
As for Mah Sing Group Bhd, it remains committed to finalise its joint-venture agreement with the Bain Capital-backed Bridge Data Centers to develop a 300 megawatt (MW) DC facility at the Mah Sing DC Hub@Southville City, the research pointed out.
“Likewise, Sunway and UEM Sunrise Bhd (UEMS) are targeting to complete DC-related land sales in Iskandar Malaysia by the first half of 2025 (1H25) and end-2025, respectively.
According to CIMB, Mah Sing is also in talks with a DC operator to monetise a 42 -acre plot of land in Bandar Meridin East in Pasir Gudang, Johor that has a potential capacity of up to 300 MW.
Meanwhile, UEMS' memorandum of understanding with Sydney-based LOGOS Infrastructure to develop a DC campus in Gerbang Nusajaya, Johor that has a potential capacity of up to 360 MW, remains a work in progress. It also noted that SP Setia Bhd's proposed Tg. Kupang Green e-Industrial Park has drawn some interest from several DC operators.
However, CIMB said for property stocks under its coverage, it has not imputed any property-related income into the valuation models for Sunway, UEMS , and SP Setia. As for Mah Sing, its existing model assumes a RM1.4bil valuation for DC-related property income, which is about 26% of the stock's RM2.10 target price.
On the whole, CIMB is Overweight on the construction sector and reiterated its Neutral view on the property sector.
