KUALA LUMPUR (Jan 17): Malaysian stocks tied to the data centre investment theme face further downside risks, JPMorgan warned and downgraded Sunway Construction Group Bhd (KL:SUNCON) and Gamuda Bhd (KL:GAMUDA).
Construction stocks, in particular, have declined, but premium price multiples have not been fully reversed, JPMorgan said on Friday. Tightening US chip export restrictions could potentially affect two-thirds of the four-gigawatt data centre capacity planned in Malaysia, according to its estimates.
“Downside risks for Malaysia’s data centre pick-and-shovel thematic [are] materialising,” JPMorgan said, and cut Sunway Construction to ‘underweight’ from ‘neutral’ and slashed its target price to RM2.50 from RM4.10.
At the target price, Sunway Construction would be valued at 17 times theforward earnings and back to its 10-year historical average, versus 19 times currently.
Shares of Sunway Construction extended their decline on Friday, even after losing 23% in the first two weeks of 2025 as the US announced more measures to control the flow of advanced computing chips crucial for data centres.
The stock has more than doubled in 2024 thanks to large project wins to build data centres. The company’s exposure to data centre is also the highest, making up more than half of its outstanding order book and 70% of the project wins last year.
“We believe the negatives from the potential slowing [data centre] project tenders have not been fully priced in,” JPMorgan said. The research house’s analysis shows that every RM1 billion of data centre project wins has a 16% impact on its earnings.
Gamuda’s diverse portfolio
JPMorgan, meanwhile, lowered its recommendation for Gamuda to counter-consensus ‘neutral’ from ‘overweight’ but noted that its diverse portfolio is a saving grace. The research house also cut its target price for Gamuda to RM4.00 from RM4.26, noting 8% downsides to consensus earnings estimates.
The new target price, valuing Gamuda at 17 times its forward earnings, would reflect the market’s more conservative expectations for new project wins, JP Morgan said. Data centres only accounted for 7% of Gamuda’s outstanding order book, and its current project tenders also include other types of projects, both domestically and overseas.
“Our neutral rating is premised on Gamuda’s ability to secure projects from other frontiers such as renewable energy in Australia, rail and basic infrastructure projects both domestically and overseas, as well as its new venture into sovereign cloud solutions,” it added.
Gamuda, the biggest construction firm in Malaysia, has lost about 10% of its market value so far this year after it more than doubled in 2024. The stock also fell on Friday.
JPMorgan’s downgrade on Gamuda stood in contrast to the majority’s ‘buy’ calls. The stock has 18 ‘buy’ and only three ‘hold’ calls following JPMorgan’s latest move.