KUALA LUMPUR (July 20): CGS International believes end-to-end piping solutions provider ISF Group Bhd (KL:ISF) still has further upside despite reaching its highest share price since listing, calling it an undervalued way to benefit from Malaysia’s data centre boom.
The stock hit a high of 64 sen on Monday, its highest level since listing in January, with some 17.6 million shares changing hands. It closed 11.5% or 6.5 sen higher to 63 sen, valuing the company at RM630 million.
The research house has set a target price of 80 sen for ISF, implying a valuation of 19 times forecast price-earnings for the financial year ending Dec 31, 2027 (FY2027).
ISF is considered an undervalued data centre-related stock that is expected to benefit from the next wave of data centre fit-out activities, with potential for its valuation and share price to catch up with industry peers.
CGS International said in a note Malaysia’s data centre contract cycle is likely to rapidly shift from major core-and-shell packages to downstream mechanical and engineering (M&E) and mechanical, electrical, and plumbing (MEP) system scopes, which are typically tendered six to 12 months after data centre projects commence.
While most Malaysian data centre engineering contractors are focused on M&E works, ISF stands out as a specialist in piping and water utility systems, positioning it to benefit from the growing 2026-2027 data centre tender pipeline.
With advanced data centres requiring increasingly complex liquid cooling infrastructure and large-scale water intake systems, ISF offers a differentiated, high-barrier-to-entry opportunity within the data centre infrastructure sector.
“Backed by the SPAN IPA Permit C1 and a CIDB G7 rating, the company also possesses the necessary regulatory qualifications to meet data centre requirements, allowing ISF to command stronger technical pricing power,” the research house noted.
ISF generates revenue from five main segments, with data centres as its key growth driver following its initial public offering (IPO). The company also undertakes projects in the residential, industrial, commercial, and infrastructure sectors.
ISF specialises in the data centre MEP fit-out phase, which involves installing critical systems such as servers, cooling infrastructure, and power distribution within pre-built data centre facilities.
Since its IPO in January, ISF’s order book has grown 32% to RM159.4 million, equivalent to around 1.6 times its FY2025 revenue.
About 25% of its current order book comes from data centre projects. The company also has a strong pipeline of opportunities, with a RM509.3 million tender book as of end-June 2026, of which 60% is linked to data centre projects.
ISF also delivers significantly higher profit margins, at 26%, compared with most peers, which typically achieve margins of 8% to 14%.
CGS International believes ISF is one of the clearest beneficiaries of rising data centre investment, with limited direct competition in its niche market.
“We project a three-year FY2025-FY2028 revenue CAGR (compound annual growth rate) of 19.2%, supported by an assumed 30% to 40% tender win rate, primarily driven by the data centre segment, alongside steady progress billings from industrial and residential projects,” the research house stated.
The research house also forecasts a three-year net profit CAGR of 25.3%, as investors increasingly shift their focus towards downstream beneficiaries within the data centre value chain from the second half of 2026 onwards.