SNS Network Technology (0259) is primarily engaged in the provision of Information Communication Technology (ICT) solutions across Malaysia, serving as a vital link between server manufacturers and buyers, facilitating AI adoption and integration. Backed by the ongoing AI frenzy, BUY with a TP of RM0.54 based on FY25F PE of 15x, in line with industry peers.

Malaysia's favorable conditions, including abundance of land and power resources, excellent international connectivity, and supportive government policies, is now an attractive destination for Data Centre (DC) investments. Juwai IQI's report highlights that Malaysia is the fastest-growing market, projecting a remarkable 600% growth in AI- driven Data Centre expansion over the next five years.

Recognizing the potential of AI across various sectors in Malaysia, SNS positions itself as a facilitator of AI adoption. Acting as a liaison between server manufacturers and buyers, SNS plays a pivotal role in enabling AI integration in Malaysia. While not directly involved in construction, SNS excels in other segments such as data centre fit-out, testing, commissioning, and operation management. By offering a comprehensive suite of services, including cloud computing, data analytics, and AI workload optimization, SNS addresses the diverse business needs. Its recent partnership with Supermicro aligns well with Supermicro's expansion plans in Johor, further solidifying SNS's position in the market.

Malaysia currently hosts over 40 operational DCs, each with capacities ranging from 100MW to 150MW. However, upcoming DC projects indicate an anticipated additional capacity of 1,400MW over the next five to ten years, driven by low land and energy costs. Considering that each GPU server can only support 10kW of DC usage, the potential for SNS to seize opportunities in this expanding market is significant.

As such, we believe SNS' financial performance to show exponential growth. With an average selling price per unit of RM1.5m and a gross profit margin of 15%, the company anticipates robust revenue generation. As of Q4FY24, SNS has sold 21 units of AI server, with a target to sell 300 units in FY25F. Thus, we expect FY24-FY27F earnings to grow at a robust CAGR of 39% driven by new AI server sales and continued growth in existing ICT business, fuelled by consumer device refresh cycles and ongoing digital transformation in education and commerce. In addition, SNS maintains a solid balance sheet, with a gearing ratio of 0.13x as of 4QFY24. Coupled with 3% FY25F dividend yield, SNS is currently an attractive proposition at 11x FY25F P/E.

Source: Rakuten Research - 15 Apr 2024

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