SNS Network Technology (SNS, 0259) is poised to ride the AI server boom. Since our previous report, SNS has catapulted 105%. Considering we are merely at the incipient phase of the upcycle in AI and data centres, we maintain our BUY rating with an elevated target price of RM1.23 (from RM0.54), having rolled over our valuation to FY26F based on a PE of 25x.

In our previous report, we emphasised SNS's astute recognition of AI's transformative potential across diverse sectors in Malaysia and its strategic manoeuvre to become a pivotal enabler of AI adoption. SNS as a distributor for Supermicro to sell AI GPU servers with Nvidia H100 chips is becoming a key link between server manufacturers and buyers for seamless AI integration. SNS also distributes reputable brands like Dell and plans to introduce other brands in 2H24 as a Tier 1 distributor. SNS also offers liquid-cooled solutions with NVIDIA HGX H100/H200 GPU systems and is targeting contributions next year.

Recently, SNS secured a substantial order worth RM85.5m for AI super servers from a leading e-commerce platform in Southeast Asia and Taiwan. These high-performance servers will be delivered to a data centre in Johor Bahru in August 2024 and highlights SNS's expertise in the AI server market thus setting a promising platform for future opportunities. We are confident that SNS will secure more deals and continue to strengthen its relationship with their esteemed customers.

In addition, SNS has entered into a strategic partnership with Healthcare Information Management Systems Society (HIMSS), a global advocate for digital health solutions. As HIMSS's first Digital Health Technology Partner in Malaysia, SNS will deploy HIMSS- developed tools like the Electronic Medical Record Adoption Model (EMRAM) to standardize medical records across hospitals. SNS plays a crucial role as a consultant, working to convince every hospital to adopt the EMRAM program, with data securely stored either on cloud or on-premises servers. Although still in early stages, the potential is immense, positioning SNS as a pioneer in this transformative initiative.

Therefore, we anticipate SNS to meet its target of delivering 300 units of AI super servers in FY25, with aspirations to double this figure next year. Consequently, we have upgraded our FY26F/FY27F earnings projections by 3% and 1%, respectively. We believe SNS’s outlook remains bright driven by new AI server sales and continued growth in its existing ICT business, fuelled by consumer device refresh cycles and ongoing digital transformation within the education and commerce segments. SNS maintains a solid balance sheet, with a gearing ratio of 0.17x as of 1QFY25. Coupled with a 2% FY26F dividend yield, SNS is currently an attractive proposition at 17x FY26F PE, which is below the Bursa Technology Index’s forward PE of 32x.

Source: Rakuten Research - 17 Jul 2024

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