• Maintain BUY, with new MYR2.70 TP from MYR2.26, 52% upside and c.3% yield. We view Mah Sing’s second collaboration with Bridge Data Centres (BDC) positively. Although the company has yet to announce the offtaker for the first 100MW signed in May this year, BDC’s demand for another 36 acres and additional 200MW nonetheless suggests its strong confidence in filling up the capacity. Meanwhile, FY25Fearnings will see a quantum leap, boosted by land disposal gain to the JV while FY26F earnings will see the maiden contribution from BDC’s first 100MW (Plot 2).

• Second collaboration with BDC. Mah Sing has signed a second collaboration agreement with BDC for an additional 200MW power capacity on a 35.68- acre land (Plot 3a and 3b) in Mah Sing’s DC Hub @ Southville City for hyperscale or artificial intelligence-data centre (AI-DC) customers. This brought BDC’s total power capacity at the DC Hub to 300MW. The aggressive demand by BDC well indicates that it is confident in securing offtakers for the total 300MW. The execution is fast as the JV is now rushing to finalise the electricity supply agreement (ESA) to properly plan the usage of power by phases and the whole 300MW is expected to be ramped up in 2- 3 years. The development order for the whole 500MW DC Hub has already been submitted, and hence, construction for BDC’s Plot 2 can start early next year once the offtaker is secured.

• Manageable capex funding. Similar to the first collaboration, we think Mah Sing will likely have a 20-30% stake in the JV. Assuming 70% debt funding for the JV, Mah Sing plans to fund its MYR675m capex contribution with the 17.55-acre land (valued at MYR160 psf) and 35.68-acre land (valued at MYR200 psf) as well as potential disposal of the 42.52-acre land in Meridin East, Johor. These three parcels of land could generate proceeds of about MYR650m, sufficient to cover almost all of the funding commitment.

• We raise FY25F earnings by 30%. Apart from the core earnings from property development, the gloves manufacturing segment is expected to break even next year given the expected recovery in ASP. The disposal of 53 acres of land in DC Hub into the JV is estimated to yield a net gain of about MYR110-120m, while the sale of the Meridin East land could provide further upside to FY25Fearnings. Based on a 40% dividend payout, FY25F DPS could hit 6 sen. Note, we only factor in minimal income from the DC investment in FY26F due to the usual low capacity in the initial stage as well the timing of commencement. Assuming a 25% eventual stake, 50% EBITDA and 15% net margin, as well as USD100/kw/month rate, incremental earnings from the 300MW capacity would be about MYR45-50m pa (in FY28F-29F).

• Higher TP. We similarly value the additional 200MV DC at 15x EV/EBITDA. In addition to the land sale gain, our new TP is now at MYR2.70 (including a 0% ESG premium/discount), based on an unchanged 30% discount to RNAV for property development.

Source: RHB Securities Research - 29 Oct 2024