Cloudpoint Technology (CLOUDPT) is a Malaysian IT solutions provider specializing in designing, customizing, and integrating IT solutions for various business needs. Its services include enterprise and data centre (DC) networking solutions, cybersecurity solutions, professional IT services, cloud services, and software applications. CLOUDPT’s clients are principally from the financial services sector, telecommunication sector and large enterprises. BUY with a TP of RM1.04 based on FY25F PE of 20x backed by the ongoing AI frenzy, cloud adoption and thriving digital revolution.

CLOUDPT aims to become a key player amid a DC booming landscape, offering a seamless experience from sourcing to building and managing infrastructures through a single provider. In Feb 2024, CLOUDPT has proposed to acquire a 75% stake in the Unique Central Group (UCG) for RM26.8m (backed by a profit guarantee totalling RM14.25m over 2024- 2026). UCG specializes in serving hyperscale DCs, telecommunication firms, financial institutions, large enterprises, and government agencies. This acquisition enables Cloudpoint to offer hyperscalers and DC operator solutions and services for containerized DCs, power, cooling and thermal management, especially liquid cooling, for AI-DCs with Nvidia's GPUs.

Underpin by potential DC technology refresh contracts, we believe project- based revenue will remain strong plus rising demand for cybersecurity solutions as clients increasingly seek AI-based solutions for threat prevention, detection, and threat hunting. The recent approval of the Cybersecurity Bill 2024 will further benefit CLOUDPT as this aims to strengthen national cybersecurity standards for critical sectors. CLOUDPT via its solid network of vendors namely CISCO, Trend Micro, Palo Alto etc. is well-positioned to meet the new regulatory requirements and capitalize on the increasing demand.

CLOUDPT's new digital applications and cloud services segment is poised for high growth due to overwhelming demand for generative AI and this has resulted in three new ServiceNow projects. As such, we project this segment to grow in revenue share from 2% in FY23 to 8% in FY24. Alongside the anticipated increase in project-based revenue, CLOUDPT is also expected to see substantial growth in recurring revenue from professional IT services, as around 90% of its clients typically opt for service and maintenance contracts post-project completion. In addition to its orderbook of RM60m as at end-1Q24, CLOUDPT has a strong tender book of RM100m, with a high likelihood of winning these bids.

We expect FY23-FY26F earnings to grow at a robust CAGR of 30% driven by i) acceleration of digital transformation in Malaysia, ii) data centre boom, iii) higher uptake of cybersecurity solutions, iv) increased orders from existing clientele and v) augmented contribution from recurring revenue sources. CLOUDPT maintains a solid balance sheet with a net cash position and recently established a dividend policy with a 30% payout ratio.

Source: Rakuten Research - 12 Jun 2024

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