KUALA LUMPUR (Jan 22): MIDF Research said the recent selldown of data centre-linked construction stocks may have been overdone as it sees the US’ AI chip export restrictions having minimal impact on data centre operations here.

In a note, MIDF Research said this prompted its upgrade on Sunway Construction Group Berhad (KL:SUNCON) to a “buy”, from “neutral”.

MIDF's upgrade on SunCon reflects the company’s solid project portfolio, ongoing confidence from its data centre clients and a substantial RM10 billion tender pipeline, which positions the company for sustained growth.

The research house emphasised SunCon's ability to leverage its established expertise in the data centre segment, which continues to see robust demand.  

It added that approximately 80% of SunCon’s RM10 billion tender book is dedicated to data centre projects, with the remaining portion comprising external building jobs, warehouses, factories and precast works.  

Notably, around RM4 billion of its data centre tenders are in the stage of advanced negotiations, further supporting the research house’s optimistic outlook.

SunCon said that there has been no slowdown in demand for data centre projects in key regions such as the Klang Valley and Johor.

There have been no indication of delays or cancellations in projects due to the US’ framework of AI diffusion. Data centre clients across markets such as the US, Netherlands and Singapore remain confident in their expansion plans, with no sign of disruption despite ongoing discussions surrounding the US’ AI chip export restrictions, MIDF said. 

However, SunCon's management acknowledged that clearer guidelines from the US government would be necessary to fully assess the long-term impact of such restrictions, especially in light of the potential policy changes under the new administration of President Donald Trump.

While SunCon focuses on data centre construction, its management emphasised that this does not mark a departure from its involvement in infrastructure and property projects. 

The company continues to be actively engaged in infrastructure tenders and has maintained a strategic balance in its portfolio.  

In the event of any adverse development in the data centre segment, SunCon retains the flexibility to pivot back to other areas within the Sunway Group, including property development, which could provide an additional buffer.

For the current financial year, SunCon’s management has set an order book replenishment target of RM4 billion to RM5 billion, reflecting the company’s focus on maintaining a healthy project pipeline while capitalising on the opportunities within its core data centre business. 

According to Bloomberg, eight analysts have a “buy” recommendation, six have a “hold” rating while two have a “sell” rating on SunCon.

At the time of writing, SunCon’s shares were up four sen or 1.1% to RM3.73, valuing the company at RM4.81 billion.