• On October 28, 2024, Southville City Sdn Bhd (SVC), a fully-owned subsidiary of Mah Sing, entered into a second collaboration agreement with Bridge Data Centres Malaysia VII Sdn Bhd (BDC). This joint venture (JV) aims to develop data centers, facilities, and infrastructure across an additional two land parcels totaling approximately 35.68 acres, with a targeted power capacity of 200MW, within the Mah Sing DC Hub@ Southville City, Bangi, Selangor.

• Following the second collaboration in data center development, the capacity has increased to 300 MW, which could potentially create a sustainable income stream starting in FY26F, in our view.

• We maintain a BUY call on Mah Sing with a higher target price (TP) of RM2.19 (from RM2.07), based on a sum-of-the-parts (SOP) valuation. This revision reflects an increased assumption of equity stake in data center from 20% to 30% and establishes a higher recurring income stream, ensuring visibility for sustainable longterm earnings.

Mah Sing Entered second JV Agreement with Bridge Data Centre.

Mah Sing second partnership with Bridge Data Centres Malaysia VII Sdn Bhd (BDC) represents a substantial enhancement of the initial collaboration initiated on May 30, 2024. Originally concentrated on 17.55 acres of the 150-acre Mah Sing DC Hub@Southville City, the new agreement introduces an extra 200MW power capacity across 35.68 acres, raising the total capacity to 300MW. The entire hub is designed to accommodate up to 500MW of power capacity, positioning Southville City as a modern data centre hub. This data centre is targeted at established AI and hyperscale clients, with the first phase expected to begin operations by 2026. The second joint venture (JV) reflects strong confidence in Southville City’s advantageous position, located within a strategic triangle connecting key data centre hubs in Cyberjaya and Bukit Jalil, a mere 20 kilometers away.

Strategic Land Valuation and Development

The 35.68 acres parcel designated for this 200 MW power capacity project has been valued at approximately RM311mn, or RM200 per square foot (psf). This land is divided into two parcels, the first parcel referred to as "Plot 3a", measures approximately 458,251.20 square feet (10.52 acres) within the master title, while the second parcel, known as "Plot 3b", spans approximately 1,095,969.60 square feet (25.16 acres) within the same master title. The surrounding land is valued at a reference price of RM200 psf. However, for the first JV project with BDC, the agreed reference price is RM160 psf, making the total value of the land for the 17.55 acres approximately RM122.3mn.The company has secured a sale for the total land for the 300 MW data center development, valued at about RM433mn. This land sale is expected to be recognised in FY25. Based on the JV agreement and the company's guidance, Mah Sing will utilize the sales proceeds from a parcel of land in the JV as part of the capital for a 30% equity stake in the DC partnership, which will incur an equity investment cost of approximately RM675mn.

Potential to Generate Higher New Income Streams

The current average market rental rate for DC is around USD 100-USD 125 per kilowatt per month. Referring to BDC's parent company Chindata's business model, assuming an 80% utilization rate for a 300MW DC, it is projected that the facility could generate approximately RM1.18bn in annual revenue. For Mah Sing, assuming a 30% stake and a net profit margin of 19%, this would translate to an annual net profit of approximately RM67mn in FY26F from the DC.

Maintain BUY with a Higher TP of RM2.19

We are maintaining our recommendation on Mah Sing as a BUY, with a higher TP of RM2.19 (from RM2.07), based on the sum-of-parts (SOP) valuation. We have increased our assumption of equity stake in data centers from 20% to 30% and increase our FY26F PAT by 2% to RM345mn from RM338mn, to reflect a higher recurring income stream from JV. This adjustment is justified due to: 1) the company's strong fundamentals and ongoing land acquisitions, which contribute to a quick turnaround and enhance visibility for sustainable long-term earnings; and 2) the diversification of revenue streams by leveraging its land bank to generate recurring income from data centers.

Source: BIMB Securities Research - 29 Oct 2024