• Maintain BUY, TP drops to MYR2.15 from MYR2.70, 54% upside with 4% FY25F yield. We cut Mah Sing's TP to reflect uncertainties related to its data centre (DC) investment, given the latest artificial intelligence (AI) chip restrictions imposed by the US. Despite our more conservative valuation, we think the stock is oversold, and its share price over the near term should reflect the company's strength and the growth prospects of its property development business via strategic landbanking and amidst robust demand.
• Background of Mah Sing's partnership with Bridge DC. Mah Sing had initially earmarked 150 acres of land in Southville City for its DC Hub development, with a planned capacity of up to 500MW. The company has locked in a total of 53 acres with Bridge DC, with a total capacity of 300MW last year. We understand that management is finalising the JV agreement with Bridge DC now for the first phase, which will span 17.55 acres (100MW). Note: Mah Sing has not deployed any equity or capital in the JV, as its equity participation is supposed to be largely from land injection.
• The potential risks. Although Bridge DC is backed by US-based Bain Capital, there are uncertainties on who the off-takers are, and how this AI chip restriction may affect Mah Sing's investments if the off-taker turns out to be a China-based company (ByteDance is the anchor tenant at Bridge DCs in Johor). In addition, given the latest AI woes, the DC deals for Phase 2 (involving 35.68 acres and the remaining landbank in Southville DC Hub (roughly 100 acres)) may take a longer time to be realised, going forward. Having said, the challenges may also represent an opportunity for Mah Sing to turn the remaining land in the DC Hub to an industrial park in future, given the readily available utilities supply and infrastructure. We expect demand for industrial properties to remain strong over the next 1-2 years.
• Impact on our valuations. Our new TP only factors in the first phase of 100MW, as we think the second phase with Bridge DC may take some time to materialise. As such, we exclude the potential land sale gain from our SOP valuation (for Phase 2), and also cut our EV/EBITDA to 13x (from 15x), given the uncertainties clouding the DC sector in Malaysia over the near term. To be prudent, depending on the structure of the JV, we cut our FY25 earnings forecast by 27% as we previously imputed the land disposal gain for Phase 1 into our numbers. FY24 and FY26 earnings forecasts are unchanged.
• Still a BUY. Given the sharp correction in its share price last week (-22% YTD), we think the market has already priced in the potential risks ahead in relation to Mah Sing's DC investment. Confidence could be restored if management is able to sign the JV agreement with Bridge DC soon and secure reputable off-takers that have no issue in accessing US AI chips.

Source: RHB Research - 20 Jan 2025