Data-centre proxy stocks decline; experts warn against early bottom fishing

• “The incoming Donald Trump administration is unlikely to reverse the outgoing Joe Biden’s policies. However, if further negative developments occur, the downside risk is significant,” said an analyst.

KUALA LUMPUR (Jan 16): Data-centre proxy stocks on Bursa Malaysia have fallen sharply since the beginning of the year, due to US export restrictions on artificial intelligence (AI) chips, but analysts caution against buying the dip too soon.

Notably, the FBM KLCI has also declined close to 5% since the start of the year. The key index rebounded by 0.67% on Thursday, following three consecutive days of declines.

It opened at 1,572.61 and hit a peak of 1,576.57 in the morning session. However, by midday break, the benchmark index had dipped 0.05% to 1,561.27.

Notably, YTL Power International Bhd (KL:YTLPOWR), which was going to collaborate with Nvidia Corp to build an AI infrastructure that will be powered by the American chip firm’s technology, saw its stock price plunge by 14.5% year to date.

Despite this, market experts caution, with at least two industry analysts saying it may still be too early to consider bottom fishing for data-centre proxies.

According to one analyst, who declined to be named, the main challenge for data centre-related themes lies in valuation de-rating.

He said while some may argue that earnings will remain unaffected by US’ export curbs, the sector is likely to face a reduction in price-to-earnings (PE) multiples, said the analyst.

“The incoming Donald Trump administration is unlikely to reverse the outgoing Joe Biden’s policies. However, if further negative developments occur, the downside risk is significant.

“The reality is that chip restrictions will undoubtedly slow Malaysia’s efforts to become a data-centre hub in the long run, which will also hinder the country’s ambition to move up the value chain. In short, this will result in slower technological advancement,” said another analyst.

Shares of some data-centre proxy companies were in the red during Bursa Malaysia’s morning session.

In the industrial sector, Gamuda Bhd (KL:GAMUDA) saw its share price drop over 4%, hitting a low of RM4.25. Year to date, the counter had declined by 10%. Gamuda won a RM1.74 billion contract in May last year, to build a hyperscale data centre for Sime Darby Property Bhd (KL:SIMEPROP).

The stock was trading down 15 sen, or 3.37%, at RM4.30, with approximately 33.75 million shares exchanging hands.

MN Holdings Bhd (KL:MNHLDG), which had peaked at RM1.29 on Jan 6, also experienced a decline, with its share price falling 8.65%, or nine sen, to 95 sen. MN Holdings bagged a job to undertake power landing station works for a data-centre service provider. Year to date, the stock has dropped 24%.

In the property sector, shares of Eco World Development Group Bhd (KL:ECOWLD) declined by 3.16%, reaching RM1.84, while Mah Sing Group Bhd (KL:MAHSING) dropped 2.68%, to RM1.45.

Eco World, meanwhile, struck a deal last July to dispose of 123.141 acres of industrial land in Eco Business Park VI in Kulai, Iskandar Malaysia, to Microsoft Payments (Malaysia) Bhd for RM402.3 million cash.

Mah Sing announced a partnership with Bridge Data Centre last August, to develop a 100MW (megawatt) data-centre facility on its land in SouthvilleCity. The property stock saw its share price nosedive by 19.5% since the beginning of the year.

In the technology sector, VSTECS Bhd (KL:VSTECS) saw a decline of 2.32%, trading at RM3.37, while Cloudpoint Technology Bhd (KL:CLOUDPT) fell 2.13%, to 92 sen.

VSTECS — a distributor of Amazon Web Services — has been capitalising on AI, cloud, and data centre opportunities to support its earnings growth, but saw its share price decline by 18% year to date.

The share prices of companies in the power and utility sectors, namely Tenaga Nasional Bhd (KL:TENAGA), were down 1.04% to RM13.36, while Taliworks Corp Bhd (KL:TALIWRK) slipped 0.63% to 78.5 sen.

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