Sime Darby Property (SDPR), to our positive surprise, announced that via its wholly-owned subsidiary, Sime Darby Property (EBP Asset II) Sdn Bhd, have entered into an agreement with Pearl Computing Malaysia Sdn. Bhd., a wholly-owned subsidiary of Raiden APAC Pte Ltd (owned by Google) to build and lease (BTL) data centre facilities and associated structures in Elmina Business Park Phase 2. The Group latest deal is more than double the earlier one announced in May in terms of lease value (at up to RM5.6bn) for a duration of twenty years commencing from the completion and delivery of the project and with options to renew the lease term for a further five years upon the expiry of the initial term. Details (i.e investment costs and projected returns) are not available at this juncture. However, based on the first deal which we understand costing about RM815m for construction, completion, testing, and commissioning of a hyperscale data centre, we estimate the second data center could cost SPDR about RM3bn to build. Pending more details, we keep our earnings unchanged for now. We now foresee its quality of earnings will improve now that data centers alone could provide rental income as high as RM380m p.a. during lease period, and as such, we reduce our discount to book to about 0.9x (from 0.8x book value previously), with TP revised to RM1.45. Maintain Neutral as we believe the positives are largely baked in.

• Another sweet deal. To recap, this will be SDPR's second BTL data center deal with the same tenant. It has earlier announced the first data center back in May this year, which is sitting on an approximately 49-acre site within SDPR's 1,500-acre Elmina Business Park, with construction completion targeted for 2026. Following completion of construction, the parties will enter into a 20-year lease valued at up to RM2bn, with options to renew for two additional five-year terms. The Group latest deal is more than double the earlier one announced in May in terms or lease value (at up to RM5.6bn) for a duration of twenty years commencing from the completion and delivery of the project and with options to renew the lease term for a further five years upon the expiry of the initial term
• Rental income about RM280m p.a. on average. The second data center asset is estimated to yield about RM280m in rental income p.a. and hence together with the first data center, both are estimated to contribute about RM380m in rental income to Group's revenue per year. We estimate the construction cost for its second DC asset could be around RM3bn, which unlikely to be problem, given its low net gearing currently at about 0.2x.

Source: PublicInvest Research - 3 Dec 2024