Google Chooses Elmina Business Park Again

Sime Darby Property (SDP) has announced a new agreement with Googleaffiliated Pearl Computing Malaysia Sdn. Bhd. to develop, construct, and lease additional data centre facilities (DC) at Elmina Business Park Phase 2. Spanning 77 acres, the new DC will be custom-designed to meet Pearl Computing's specifications and will be located near its first data centre. To recap, the first DC, situated on a 49-acre site, is currently under construction and is expected to be operational by 2026.

The agreement, effective 30 November 2024, outlines plans for the second DC to be completed by the end of 2027. Pearl Computing will lease the facility for an initial term of 20 years, with two optional five-year renewals. The rental income is projected to total up to RM5.6bn over the initial lease period.

Our View

Overall, we view this development positively as it strengthens SDP’s investment and asset management portfolio while supporting its SHIFT25 strategy to grow recurring income. Securing long-term leases with a global tech leader like Google diversifies SDP’s income base and ensures steady, visible cash flow over the long term.

More importantly, Google’s continued investment also underscores SDP’s ability to deliver high-quality industrial and commercial properties that meet international standards, further positioning Elmina Business Park as a premier digital and industrial hub. This enhances SDP’s reputation as a trusted partner for multinational corporations and positions it to attract similar high-profile projects, reinforcing its leadership in the industrial property sector.

Forecasts

Net profit margins for Singapore DC REITs typically range between 50% and 60%. Assuming a 40% net margin to account for Malaysia’s corporate tax, we estimate that the new DC will generate an annual income of up to RM112mn. However, we are maintaining our earnings forecasts for now, pending further guidance from management.

Valuation and Recommendation

We maintain our Buy rating on SDP, with a TP of RM2.00/share. This valuation employs a 1.2x P/B multiple to its CY25 BPS and incorporates a 5% ESG premium. SDP remains our top pick in the property sector due to its successful execution of the SHIFT25 strategy, strong leadership in industrial property development, and robust financial performance.

Source: TA Research - 3 Dec 2024