The recently announced US export controls on AI chips by Biden administration, classifying Malaysia as a Tier 2 country and limiting the import of graphics processing units (GPUs) to 50,000 units over two years, has caused some jittery among investors. Based on our recent engagement with management, MN sees a minimal impact on their main customer, A, a China-based DC operator (24% of the latest order book) at the current juncture. We gather that the off-takers for the main customer consist of a mix of US and non-US-based MNCs, and the first three phases of development primarily use central processing unit (CPU) chips for servers. The upcoming Phase 4 and 5 expansions, likely with US-based MNCs as off-takers, should be able to secure the necessary AI chips requirement by applying the Validated End User (VEU) designation, allowing them to bypass the restriction and obtain the required AI chips.
TNB announced on 26 Dec 24, a higher allowed capex of RM42.8bn under RP4 for 2025–27, which includes RM26.6bn in base capex (compared to RM20.6bn in RP3). This reaffirms our positive outlook on MN as one of the key beneficiaries of TNB’s initiatives and the nation’s National Energy Transition Roadmap (NETR). The increased investment in upgrading and maintaining infrastructure assets is expected to drive higher order book replenishment for MN. The current tender book of RM1.2bn comprised 74% of TNB and Sarawak Energy jobs.
MN’s share price has fallen by 15% following the news of AI chip export control. As we see minimal impact to its largest data centre customer at the current junction with the expansion pipeline largely intact, we reiterate our BUY rating with an unchanged 12-month target price of RM1.45 (pegged to a 20x PE multiple on fully diluted CY25 EPS). Key risks to our BUY call include slower-than-expected project rollouts and unforeseen delays.
Source: Philip Capital Research - 15 Jan 2025