Sharing from another remisier...
*Quick Take On Property Sector* 馃摑
*Mah Sing and Eco World (ECW) experienced the steepest declines among property companies*, with shares dropping 15% and 14%, respectively, following the announcement of restrictions on advanced AI chips. SP Setia and Sunway have also declined by 6% post-announcement. Here are our thoughts:
馃敽 Concerns about future land valuations and the total addressable market for data centers (DC) have weighed on sentiment, but we believe the market has fairly priced in the associated risks, pending further clarity from the US government.
馃敻In our view, *there remains a risk to Mah Sing鈥檚 Southville joint venture* due to its ties with parent company - Chindata, which is headquartered in China and subject to Chinese data laws, as well as association with a potential offtaker - Bytedance, which is also a major client of Chindata. The Chinese data laws raise concerns about data sovereignty and potential challenges in attaining/retaining VEU status.
馃敻Despite these concerns, *we think the sell-down in Mah Sing is unwarranted given its proactive measures in safeguarding from premature project commitments.* We understand that the collaboration with BDC has built-in conditions precedent, requiring BDC to secure Tier 1 hyperscale or AI-focused companies, before the project can officially commence. *It seems that finalizing the agreement is proceeding as planned*, targeting commencement of Phase 1 operations in 2026. This suggests that BDC sees less risk and low likelihood of the project halting. Additionally, BDC has paid a non-refundable upfront fee, providing financial assurance to Mah Sing while reserving the land for development.
馃敻Excluding DC, *Mah Sing鈥檚 core business remains resilient, with strong demand for its property launches and higher progressive billings for 2025-26* as its projects enter mid-stage construction.
馃敻 *Current price still provides a fair amount of upside* to the scenario-based TP if we were to:
1) exclude DC components, our target price will be RM1.94.
2) exclude DC components and assume a higher discount on RNAV at 50% (vs 5-year mean of 63%), our target price will be RM1.61.
馃敽*ECW鈥檚 valuation has increasingly traded at a premium* due to its exposure to industrial parks and its ability to secure land sales to top-tier data centre players, such as Microsoft and Princeton.
馃敽*This restriction does not impact ECW鈥檚 current and ongoing deals, and we expect the company to announce another data center deal soon.* Additionally, the 7% cap limit per country requirements for VEU status companies is unlikely to significantly impact US-based hyperscalers (ie Microsoft), given their larger scale and demand for DC.
馃敽We believe a valuation premium on ECW is still justifiable, as: a) current and ongoing DC deals are not impacted, b) it鈥檚 also *focusing on high-margin high-technology industrial parks which continues to be in high demand*, and c) strong pricing power and execution. Our target price of RM2.35 is based on 40% discount to RNAV (vs historical mean of 60%).
馃敻*SP Setia, with its share price down 6% post-announcement, has suffered collateral damage* despite having no current DC exposure.
馃敻We estimate that *only 6% of the landbank will be used for future JV with DC* (calculated based on 18% industrial landbank and 1/3 is from Tanjung Kupang land, majority of that land will be used for DC). Hence, any impacts would also be minimal. Our target price of RM1.95 is based on 50% discount to RNAV, close to its historical mean of 57%.
馃敽*Sunway Bhd's share price also declined by 6% post-announcement, mainly driven by SunCon's significant exposure to DC projects*. However, we believe the impact will be mitigated as: a) SunCon can rely on internal contracts from Sunway Bhd, and b) its order books and tenders are primarily focused on cloud DCs, which have minimal demand for the restricted AI chips.
馃敽*Our current target price of RM4.71* is based on SOTP valuation, with a 15% RNAV discount and 21x 2025PE.
If we were to cut SunCon鈥檚 implied PE to 17x, *following our construction analyst鈥檚 recommendation,* our target price will be *RM4.61,* still provides 10% upside at current level.
$SUNCON / 5263 (SUNWAY CONSTRUCTION GROUP BERHAD)
$SPSETIA / 8664 (S P SETIA BERHAD)
$MAHSING / 8583 (MAH SING GROUP BERHAD)