RHB Investment Bank Bhd (RHB Research) and Maybank Investment Bank Bhd (Maybank IB) have maintained their Buy calls on Sime Darby Property Bhd (SDP), citing strong growth potential from its latest build-and-lease agreement with Google LLC. RHB Research has revised its target price (TP) to RM2.33, offering a 55% upside, while Maybank IB has kept its TP at RM1.66, reflecting an 11% potential increase.
Analysts at both research houses highlighted the significance of SDP's second data centre (DC) project with Google, which involves the construction of a facility on a 77-acre site in Elmina Business Park (EBP). RHB Research noted that the agreement, which includes a 20-year lease valued at RM5.6 billion, marks a major milestone for SDP, as the project is expected to deliver a step-change in recurring income from FY27 onwards.
Maybank IB added that the annual rental income of RM280 million from this facility is more than double the earnings from the first DC project announced in May 2024. They believe this latest development solidifies SDP's ability to attract reputable hyperscale operators, boosting the credibility and appeal of EBP.
RHB Research estimates that Google's total investment in EBP, including both DCs, could reach RM7 billion, making it a cornerstone project for the business park. The research house highlighted the potential for this development to attract ancillary industries, such as cooling tower manufacturers, further enhancing the area's ecosystem. They also view the strategic positioning of EBP as a key contributor to SDP's property sales, which currently account for 25-30% of its annual revenue.
Maybank IB analysts believe this project aligns with SDP's SHIFT 25 strategy, which aims to increase its recurring income streams. They also pointed out that the presence of Google as an anchor tenant could draw other high-tech players and DC operators to EBP, creating a ripple effect that supports long-term growth.
The financial implications of the deal also came under scrutiny. RHB Research noted that the estimated RM2.2 billion construction cost for the second facility could push SDP's net gearing to 0.4-0.5 times from the current 0.19 times. However, analysts at both firms believe the market will remain supportive, given the strong profile of the tenant and the expected yields of 7-8%.
Both RHB Research and Maybank IB have reiterated their optimism about SDP's management capabilities and strategic vision. Analysts expect SDP's earnings to see a substantial uplift from FY27, supported by contributions from both DCs. These developments, they said, underline the company's potential to become a leader in Malaysia's property development and recurring income sectors.
