BNASTRA: Data Centre Contract Win Fuels Strong Order Book Growth

A leading construction firm has secured a significant RM503 million contract for a data centre (DC) project from Exsim Sri Permai in Kuala Lumpur. This latest award marks the company’s sixth DC contract and its first project win for the fiscal year 2027 (FY27), underscoring its strategic pivot beyond traditional residential developments.

Order Book Expansion and Strategic Diversification

The new contract immediately boosts the company’s outstanding order book to a robust RM7 billion, translating into an impressive order book-to-revenue cover ratio of 7.4 times based on FY25 revenues. This substantial pipeline is anticipated to ensure strong execution throughout FY27, with the year primarily dedicated to delivering existing projects.

The company’s diversification strategy has seen it actively pursue various project types beyond conventional housing, including sewage treatment plants and solar projects. Its ventures into the data centre sector, though relatively smaller compared to other listed contractors, are proving successful, with approximately RM1.9 billion worth of DC jobs secured across six contracts, representing 10-15% of the total outstanding order book.

Enhanced Capabilities and Future Prospects

The firm’s 51% stake in LF Lansen provides a crucial competitive edge, equipping it with advanced expertise in thermal energy storage and distribution, DC cooling equipment, and heating, ventilation, and air conditioning (HVAC) systems. This specialized capability is vital for complex data centre infrastructure, exemplified by plans for eight buffer tanks on the roof of a DC project facilitated by LF Lansen.

Looking ahead, medium-term prospects remain promising, with potential projects such as the remaining phases of The Asteriaz development by EXSIM Development in Johor Bahru, estimated to be worth approximately RM500 million.

Investment Outlook

Despite the significant contract win, earnings estimates remain unchanged, as the latest project is within previous job replenishment assumptions. The investment bank maintains its “BUY” recommendation with an unchanged target price of RM2.72, offering a 27% upside from the last traded price of RM2.14. This target price is derived by pegging FY27F EPS to a target P/E of 17x, with an additional 2% ESG premium.

The stock is currently trading at 13.7 times FY27F P/E, which is a discount compared to the Bursa Malaysia Construction Index’s average of approximately 16 times during the 2017 construction upcycle. The investment bank believes this discount is unwarranted, given the company’s successful diversification into non-residential property projects. A key downside risk identified is sluggish job replenishment trends.