KUALA LUMPUR (Jan 15): MN Holdings Bhd (KL:MNHLDG), a specialist in underground utilities and substation engineering, will experience minimal disruption to its ongoing data centre projects despite recent US export controls on artificial intelligence (AI) chips, according to Phillip Capital.

In a note released on Wednesday, the research house observed that while these controls have unsettled investors, the impact on the company’s operations is expected to be limited at this stage. It also maintained its 'buy' recommendation on MN Holdings with an unchanged 12-month target price of RM1.45.

This is because MN Holdings’ primary customer — a China-based data centre operator that makes up 24% of MN Holdings’ order book at present — remains largely unaffected by the restrictions, Phillip Capital said after engaging with the company's management.

Phillip Capital explained that the first three phases of the customer's data centre development primarily use central processing unit chips rather than graphics processing units (GPUs), mitigating immediate concerns.

Off-takers for this customer’s project also include a mix of US and non-US multinational corporations (MNCs), further reducing the risk posed by the export controls, it noted.

While the upcoming Phase 4 and 5 expansions of the data centre are expected to involve more US-based MNCs as off-takers, the research house believes MN Holdings should be able to, by then, secure the necessary AI chip requirement by applying for the validated end user designation that will allow it to bypass the export restrictions and obtain the required AI chips.

It was reported last week that the Joe Biden administration plans to introduce new export restrictions on AI chips under a three-tiered system by country, in a final push to keep advanced technologies out of the hands of China and Russia.

The aim is to curb the sale of AI chips used in data centres on both a country and company basis, to concentrate AI development in friendly nations and getting businesses around the world to align with American standards, according to news reports.

Malaysia, classified as a Tier 2 country, is permitted to import only 50,000 GPUs over two years, with data centre operators restricted to deploying a maximum of 7% of their computing capacity in any single Tier 2 nation.

At the time of writing, MN Holdings shares have slipped two sen or 1.8% to RM1.08, valuing the company at RM563.9 million.

Another research house that has MN Holdings on 'buy' is Hong Leong Investment Bank, with a target price of RM1.82.