KUALA LUMPUR (Sept 24): Malaysia is "best placed to get the lion's share" of new data centre development among Asean emerging markets, according to Maybank in its Asean Data Centre report published on Tuesday.

This is on the back of competitive data centre construction cost and average electricity tariff, coupled with a supportive regulatory environment from streamlined approval processes to conducive framework for data centre operations, according to the report.

Citing Maybank IBG Research and DCByte's data, Malaysia's under construction (159 data centres), total committed (766) and total early stage (2,016) are the highest among Asean countries.

Its total early stage data centre project count is also the second highest across Asia-Pacific, behind India's 3,224 units.

On this, Maybank said that the industry's oversupply concerns are overhyped, and early stage announcements "will hit the ground based on demand development".

"Granular analysis shows that average data centre capacities in large markets like Kuala Lumpur and Jakarta are modest at just 9MW/facility vs large announcements in 100MW to GWs," it said.

Other factors in play include incentives offered by local governments such as the current data centre hot spot Johor, which may include tax breaks, grants and expedited development approvals.

The report also touched on Johor’s water-reserve margins (the difference between production capacity and usage) which it described as being at a "comfortable" 16.9%.

"On the other hand, [water reserve margins in] Selangor/Kuala Lumpur/Putrajaya is also at a comfortable level of 15.3%," it said.

"While it’s difficult to estimate the water availability in cities such as Jakarta, Bangkok and Kuala Lumpur, we estimate the water requirement of the upcoming pipeline of data centres relative to the cities’ overall water needs is [around] 1%, and as such it’s not a material strain on these cities’ water infrastructure," it added.

Commenting on Asean-listed entities, Maybank named YTL Power International Bhd (KL:YTLPOWR) and Telekom Malaysia Bhd (KL:TM) among the key beneficiaries of data centre demand.

YTL Power, for which Maybank has a "buy" call of RM4.70, has 16MW operating data centre capacity and 72MW under development, of which 8MW is expected to come on stream this year.

It recalled that YTL Power is collaborating with Nvidia to develop artificial intelligence in YTL Power's data centre park in Kulai, Johor.

"Besides, we see YTL Power benefits owing to its interest in various elements of the data centre supply chain — power generation, water and sewerage, telecommunications and property development," it said.

As for TM, on which Maybank has a target price (TP) of RM7.50, the group has up to 46MW operating capacity in Malaysia and Hong Kong, with 64MW in the works in Johor alongside Singtel.

"TM is the main owner of on-land fibre and offshore submarine cable systems in Malaysia, and thus are beneficiaries of the data-centre boom.

"Conceptually, the higher traffic brought about by hyperscale data centres should result in an accretion in telcos’ wholesale revenue," Maybank said.

The research house also highlighted other beneficiaries, including solar farm owner and construction group Solarvest Holdings Bhd (KL:SLVEST) (TP: RM1.84) amid green energy demand, and SD Guthrie Bhd (KL:SDG) (TP: RM4.96) on "suitably located land bank" for solar farms.

On the other hand, utility group Tenaga Nasional Bhd (KL:TENAGA) (TP: RM14.70) may not see higher earnings despite higher energy demand due to existing regulatory framework, Maybank said.

"Elevated grid capex and possibly new generation projects are more tangible earnings drivers for Tenaga," it said.

Overall, Maybank sees Asean data centre demand to rise an average of 20% per year from now to 2028.

For Malaysia, construction cost per MW stands at US$8.5 million (RM35.35 million), compared with the range of between US$4.6 million and US$12.7 million across Asean and other major data centre markets like Japan, Australia, and India.

Average electricity tariff in Malaysia is seen at US$0.08/kWh, compared with the range of US$0.07-US$0.25/kWh in Asean and other major data centre markets, the report showed.