JPMorgan said downside risks for Malaysia’s data centre pick-and-shovel thematic are materialising.
The US investment bank said tightening US chip export restrictions could potentially affect two-thirds of the four-gigawatt data centre capacity planned in Malaysia.
The outgoing Biden administration has announced further restrictions on artificial intelligence (AI) chip and technology exports in a bid to keep advanced computing power in the US and among its allies while finding more ways to block China’s access.
Malaysian construction and property development stocks surged last year as multi-billion-ringgit data centre investments ramped up, prompting investors to get into stocks linked to data centres.
In a note today, JPMorgan said construction stocks have declined but “premium price multiples have not been fully reversed”.
“We believe the negatives from the potential slowing (of data centre) project tenders have not been fully priced in,” it said.
It downgraded its calls on Sunway Construction Group Bhd (SunCon) and Gamuda Bhd, two construction giants with significant exposure to the data centre theme.
SunCon has been a big loser this year after its shares more than doubled in 2024. Year-to-date (YTD), it has tumbled 24% while Gamuda, which shares also doubled last year, has dropped 12.3% so far this year.
SunCon’s exposure to data centre jobs is the highest, comprising more than half of its outstanding order book and 70% of the project wins last year.
JPMorgan’s analysis revealed that every RM1 billion of data centre project wins has a 16% impact on its earnings.
It downgraded SunCon to “underweight” from “neutral” and slashed its target price (TP) to RM2.50 from RM4.10 previously, a 39% cut.
It also downgraded its call for Gamuda to “neutral” from “overweight” and cut its TP to RM4 from RM4.26.
However, it noted that Gamuda’s diverse portfolio is “a saving grace”. It said data centres only accounted for 7% of Gamuda’s outstanding order book, and its current project tenders also include rail and renewable energy projects domestically and overseas.
Property development companies with exposure to data centre projects have also seen a decline in their shares.
Mah Sing Group Bhd, which is collaborating with Bridge Data Centres to develop Mah Sing DC Hub @ Southville City in Selangor, has seen its shares slump 23% YTD.
Sime Darby Property Bhd, whose shares surged over 150% in 2024, has dropped 13% since the start of the year. It secured a lucrative deal last year to build and lease a hyperscale data centre to tech giant Google at its Elmina Business Park in Selangor.
The shares of Eco World Development Group Bhd, another counter with data centre exposure, has fallen 14% this year.