This article first appeared in The Edge Malaysia Weekly on August 15, 2022 - August 21, 2022
TWO interested parties have their eye on AIMS Data Centre, the prized asset of TIME dotCom Bhd, sources tell The Edge. They are US-based private equity firm KKR & Co Inc, also known as Kohlberg Kravis Roberts & Co, and Singapore-based private investment firm Tower Capital Asia, the sources say.
Talk about a potential sale of the data centre was first reported in March this year, with the potential value pegged at US$500 million (RM2.2 billion) to US$600 million.
When contacted, both TIME dotCom and KKR were tight-lipped on the matter.
“We do not respond to speculation,” TIME dotCom told The Edge. KKR’s response was similar: “We are not able to comment on market speculation.”
Listed on the New York Stock Exchange (NYSE) and boasting a market capitalisation of US$47.7 billion, KKR is no stranger to Malaysia as it sought out local growth companies over the past decade.
In October 2013, for instance, the private firm acquired a 30% stake in Weststar Aviation Services Sdn Bhd for RM642 million (US$200 million). Weststar provides offshore helicopter transportation services for oil and gas companies in Southeast Asia, including Exxon Mobil Corp, Petronas Carigali and Talisman Mining Ltd.
Five years later, KKR acquired a minority stake in Taylor’s Education Group, which owns and operates international schools.
Tower Capital Asia, the other purported bidder for AIMS, is somewhat smaller as it manages US$450 million worth of funds. It had not responded at the time of writing.
But is TIME dotCom keen to sell AIMS?
According to the group’s latest financial report, it is sitting on a healthy balance sheet, which makes a potential disposal of its data centre appear unwarranted.
For the first quarter ended March 31, 2022, it had cash and cash equivalents of RM587.8 million and total borrowings of RM124.78 million.
Over the last five years, it has seen impressive growth in its top and bottom lines, posting a compound annual growth rate of 10.2% and 17.5% respectively, driven mainly by data and demand for its data centre.
For the financial year ended Dec 31, 2021, TIME dotCom posted a 19.8% jump in net profit to RM393.16 million on the back of a 14% increase in revenue to RM1.40 billion.
Based on a back-of-envelope calculation, it made a profit margin of 28% in FY2021.
Meanwhile, Companies Commission of Malaysia (SSM) data shows that AIMS Data Centre Sdn Bhd, which is 100% owned by Time dotCom, generated RM177.8 million in revenue and a net profit of RM42.3 million in FY2021. It had retained earnings of RM159.32 million.
TIME dotCom’s group capex for FY2021 was RM238.6 million, driven by investment in telecommunications assets and network rollout as well as the expansion of data centres.
The total capex was 18% of FY2021 revenue, funded by both internally generated funds and third-party borrowings.
Should the sale of the data centre go through, TIME dotCom could gain up to RM2.67 billion, which is more than 30% of its market capitalisation. TIME dotCom’s current market cap is RM8.13 billion.
If a sale materialises, will the company dish out the proceeds as a special dividend or keep the bulk for capex?
In a research note, UOB KayHian says demand for data centres in Malaysia is expected to outstrip supply in the next three years and TIME dotCom is expected to capitalise on this trend.
“We see a pipeline for two new data centres by 2025, which is AIMS @ Cyberjaya Phase 2 and EPF Changkat Raja Chulan. Taken together, we estimate TIME’s data centre is worth RM4 billion (or 45% of market capitalisation),” the research outfit states.
UOB KayHian adds that the take-up rate for AIMS @ Cyberjaya Phase 1 is meeting internal targets one year after commercial operations began in July last year.
TIME dotCom, which currently operates one data centre in Kuala Lumpur, two in Cyberjaya and one in Bangkok, is also actively expanding to capitalise on this potential market.
It has grown its presence in Vietnam via its associate CMC Telecom, in line with the group’s near-term focus to drive regional revenue growth.
According to London-based market research firm Technavio, the data centre market in Malaysia is expected to expand by US$2.08 billion between 2021 and 2026.
The demand for data centre services, attributed to a rising number of businesses shifting their operations to the cloud, has significantly boosted the industry.
Lately, Malaysia, particularly Johor state, has seen a wave of interest from data centre operators after Singapore started limiting approvals for hyperscale data centres three years ago.
The Singapore government imposed a moratorium in 2019 on new data centres, citing environmental concerns, but lifted it earlier this year.
Big technology companies are actively looking at Johor to establish their data centres. The largest operators in Malaysia include Telekom Malaysia Bhd via TM One, with 12 centres, NTT Malaysia and Keppel Corp.
According to industry analysts, Malaysia’s current data centre capacity is 120mw to 150mw.
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