NASTRA: Strong Half-Year Earnings Bolstered by Data Centre and Property Growth, ‘BUY’ Rating Maintained

AmInvestment Bank has reiterated its “BUY” recommendation for the construction firm, maintaining a target price of RM2.70, following the release of the company’s first half of financial year 2026 (1HFY26) results. The firm’s core net profit of RM53.5 million was broadly in line with expectations, driven by strong contributions from data centre and property projects.

Performance Review

For 1HFY26, the company recorded significant year-on-year growth, with revenue increasing by 59.2% and core net profit rising by 30.8%. This robust performance was primarily attributed to the ongoing success of its data centre projects. A notable surprise was the declaration of an interim dividend of 3 sen per share, representing a 61% payout ratio, signaling the group’s commitment to shareholder returns. With a healthy net cash position of RM76.8 million and a strong Return on Equity (ROE) exceeding 40%, the company is expected to sustain a 60% payout ratio, yielding 3.7%-6.0% for FY26-28F.

Operational Highlights and Margin Dynamics

While data centre projects fueled revenue growth, the company experienced a slight contraction in its EBIT margin, which fell by 2.5 percentage points year-on-year to 10.9%. This was primarily due to a higher proportion of revenue recognition from mechanical & electrical (M&E) works within the data centre projects, which typically carry lower margins. Despite this, the company’s strategic exposure to the burgeoning Johor property market and the expanding data centre segment continues to be a key driver for its robust 3-year earnings compound annual growth rate (CAGR) of 33.1%.

Future Outlook

The company maintains strong earnings visibility, underscored by an impressive outstanding order book of RM4.6 billion as of August 21, 2025. This substantial order book, encompassing residential projects in Klang Valley and Johor, as well as new data centre projects, is expected to support accelerated earnings in the upcoming quarters. While year-to-date order book wins of RM1.6 billion are slightly below target, management remains confident in achieving its FY26F target of RM4-4.5 billion, with potential contributions from solar EPCC and additional Johor residential projects. Furthermore, its strategy to build a recurring income base through asset ownership of LSS5 is poised to enhance long-term stability.

Investment Recommendation

AmInvestment Bank reiterated its “BUY” call, valuing the stock at 14 times CY27F Price-to-Earnings (PE), which is 1 standard deviation above the 10-year forward PER mean for the KL Construction Index. This premium valuation is justified by the company’s strong earnings growth trajectory and strategic positioning in high-growth segments. Key downside risks highlighted include client concentration, potential delays in project rollouts, rising building material costs, and project cost overruns.