We initiate coverage on Cloudpoint Technology (Cloudpoint) with an Outperform recommendation and a target price of RM1.09, representing an upside of 37.9%. Our valuation is based on 26x FY25 EPS, which is in line with its 2-year average multiple to capture the group's long-term earnings potential from the promising outlook of i) data centre networking, ii) cybersecurity, and iii) cloud computing. We like Cloudpoint given its penetration into data centre solutions, strong partnership with industry-leading technology providers in Fintech and AI-based solutions, and solid business model, which generates double-digit margins.

• A homegrown IT solution provider with strong presence in fintech. Cloudpoint, founded in 2003, is mainly involved in Information Technology (IT) solutions and digital applications. The KL-based IT company offers solutions in i) Enterprise and Data Centre Networking, ii) Cybersecurity, iii) Digital Applications and Cloud Services, and iv) IT services. Majority of its customers are from the financial, insurance and telecommunication industries. It is now serving 5 of the top 6 banks nationwide. Financial Service Industry (FSI) is its largest sales contributor, making up more than 90%. The group is in the midst of transferring to the Main Market of Bursa Securities.
• Strengthening presence in data centre capabilities via M&A. Malaysia has become one of the sought-after destinations for data centres, with tech giants pouring billions into the country to establish cutting-edge digital infrastructure. The Malaysian Investment Development (MIDA) has approved 12 data centre investment projects that include data centre activities, cloud computing and data hosting with an investment of RM90.2bn between 2021 to June 2024. To tap on the potential market opportunities, the Group is in the midst of acquiring a 75% stake in Unique Central S/B and Uniqcen Sales & Services S/B for RM26.7m cash, which comes with a profit guarantee of RM14.25m. Its know-how in data centre infrastructure, design, construction, monitoring and sustainability assessment solutions would complement with Cloudpoint's strengths in software and hardware solutions, turning them into an end-to-end data centre solution provider in Malaysia.
• Riding on the robust digital outlook. Malaysia's cybersecurity market is projected to reach USD4.5bn by 2033, at a CAGR of 17.0%, fueled by i) government initiatives and policies, ii) digital transformation, iii) a growing regulatory environment, and iv) rising cybersecurity awareness. In addition, Malaysia's strategic location allows cloud providers to serve both the domestic and growing neighboring markets. The growing adoption of AI has also led to an increase in demand for cloud and data centres. All these factors could contribute to the cloud technology growth for the upcoming years. According to data from Statista, public cloud revenue in Malaysia is projected to grow from USD1.8bn in 2024 to USD3.1bn by 2028, a promising CAGR of 32.6%.

Source: PublicInvest Research - 6 Nov 2024