CBH Engineering Holding Berhad - Long-Term Fundamentals Remain Intact
Fri, 02-May-2025 08:23 am
by Tan Sue Wen • Apex Research

Counter

CBHB (0339)

Target Price (RM)

0.54

Recommendation

Buy

Will data centre growth (DC) slow down?  Recent concerns over potential slowdown in DC growth have surfaced due to US policy shifts under the Trump administration, including potential semiconductor tariffs and chip export controls, as well as pullbacks by major hyperscalers. CBHB with c.80% of its earnings from HV substation projects for hyperscaler clients, is sensitive to these near-term uncertainties, which may temporarily moderate order inflows and earnings momentum. However, the long-term outlook remains robust, driven by hyperscaler commitments such as AWS’s RM29.2bn investment in Malaysia through 2038 and expansions by Tencent Cloud, Huawei Cloud, Google Cloud, and Alibaba Cloud across APAC. Domestically, Malaysia’s 1,313MW DC project pipeline and 2.2GW of signed electricity supply agreements (ESAs) further signal strong infrastructure buildout. We remain constructive on the sector’s long-term fundamentals, with CBHB well-positioned to benefit from continued investment in digital infrastructure.

 

Outlook. The DC sector may face a near-term slowdown due to uncertainties from Trump administration policies, particularly around GPU availability and operating cost volatility, prompting some operators to pause or delay projects. Industry insights suggest that the pace of new contract awards for HV substations may soften temporarily, potentially impacting CBHB's near-term order replenishment. We consider this a temporary headwind rather than a structural shift. CBHB’s proven execution track record and deep expertise in HV substation infrastructure position it as a preferred partner for ongoing and future deployments.

 

Earnings maintained. We maintain our current earnings forecasts at this stage, with adjustments to be considered should order replenishment fall short of our assumptions.

 

Valuation & Recommendation. Aligned with our revised sector outlook rating, we have decided to adjust CBHB’s PER from 18x to 15x, reflecting a more conservative base-case scenario with more moderate growth in electricity demand and substation construction activity. Consequently, our target price is lowered to RM0.45 (from RM0.54), and maintain our BUY recommendation, based on 15x FY27F EPS of 3.0 sen and a three-star ESG rating. We remain positive on CBHB, given its (i) strategic role as a proxy for Malaysia’s rising power demand, (ii) established track record in delivering HV substations tailored for DC operators, and (iii) robust supplier relationships that enable cost-efficient procurement. 

 

Risks. High exposure to the DC sector, inability to secure new contracts, and unexpected project delays.

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