This article first appeared in Capital, The Edge Malaysia Weekly on December 30, 2024 - January 12, 2025

DATA centres (DCs) have been sprouting in Malaysia, particularly in Selangor, over the years or decades even, but DCs as an investment play is quite a new development on the Malaysian stock market.

Interestingly, at the start of 2024, a sudden rise in foreign direct investment (FDI) in DCs fuelled the theme on Bursa Malaysia and investors rushed to mop up shares in the proxies to the DC value chain.

The property sector has been a dark horse in 2024 but the DC theme brought those boring utility counters back on the radar screen. Construction stocks are considered a proxy play for DCs too (see story on Page 51).

On top of that, investors are snapping up shares in companies that supply hardware and solutions to DCs, such as VSTECS Bhd (KL:VSTECS), MN Holdings Bhd (KL:MNHLDG), Powerwell Holdings Bhd (KL:PWRWELL) and Jati Tinggi Group Bhd (KL:JTGROUP).

Property developers, especially those with strategically located land in southern Johor, have unlocked the value of their land bank. It is noteworthy that the state has received most of the FDI in DCs, partly due to its proximity to Singapore.

Low-profile Johor-based Crescendo Corp Bhd (KL:CRESNDO), UEM Sunrise Bhd (KL:UEMS), Tropicana Corp Bhd (KL:TROP) and AME Elite Consortium Bhd (KL:AME) are among the property companies that have made a killing by selling their land to DC developers.

Crescendo, for instance, sealed several deals within months to sell parcels of land worth nearly RM1 billion collectively to DC developers this year. Its share price rocketed to a record high of RM1.68 on Sept 26, although it had retreated to RM1.49 as at Dec 20 — an almost 80% gain since the start of 2024. Its market capitalisation had swelled by RM576 million to RM1.25 billion as at Dec 20 while its net cash pile had ballooned to RM191.57 million as at July 31.

Crescendo is 70%-owned by the founding Gooi family, which also has a controlling stake in plantation group Kim Loong Resources Bhd.

Although Sime Darby Property Bhd (KL:SIMEPROP) does not have much land in Johor, the property giant outshone all of its property peers in 2024. The company signed an agreement with Google-affiliated Pearl Computing Sdn Bhd to develop DC facilities on a 77-acre site in Elmina Business Park in Selangor in early December 2023.

The forward momentum in the stock spilled over into 2024 and its price had more than doubled to RM1.51 as at Dec 20 from 62 sen at the beginning of the year. Sime Darby Property’s share price rose as high as RM1.67 this year, its highest since Dec 29, 2017.

Mah Sing Group Bhd (KL:MAHSING) also jumped on the DC bandwagon, signing up with global investment firm Bain Capital’s Bridge Data Centres on its DC Hub@Southville City in the Southville City township in Bangi, Selangor. Indeed, Mah Sing is going big on DC development, having allocated 150 acres for its DC hub in Southville City, with a planned capacity of up to 500mw.

YTL Power International Bhd (KL:YTLPOWR) and its parent company YTL Corp Bhd (KL:YTL) were at centre stage as the DC play gathered momentum on Bursa.

The two stocks kept climbing in 2024. This is thanks to the group’s partnership with Nvidia, whose market value has surged to US$3.4 trillion on the back of the AI theme play in the US.

Nonetheless, YTL Group paved the way for its DC venture very much ahead of the others. Back in 2021, YTL Power’s subsidiary SIPP Power Sdn Bhd bought 664ha of oil palm estates in Kulai, Johor, from Boustead Plantations Bhd for RM428.8 million. This left the investing fraternity pondering the rationale for the land purchase.

In August 2022, YTL Power revealed its plan to build a 500mw solar capacity facility and data centre park on the land. YTL Group’s Kulai Green DC Park will be powered by super computers supplied by Nvidia. Singapore-based Sea Ltd, which owns e-commerce platform Shopee, was the first tenant of the park.

YTL Power did not stop there. It accumulated a majority stake in Ranhill Utilities Bhd (KL:RANHILL), which included a portion from company founder Tan Sri Hamdan Mohamad’s 31.42% shareholding, bringing YTL Power’s and SIPP Power’s collective shareholding to 53.14%.

Ranhill’s subsidiary Ranhill SAJ Sdn Bhd is the sole water supplier in Johor. According to Ranhill’s 2023 annual report, Ranhill SAJ operates 46 water treatment plants with a capacity of 2,171 million litres per day.

Tenaga Nasional Bhd (KL:TENAGA) is one company that has not entered into any partnerships with tech giants but is still regarded as a good proxy to the DC play simply because energy-guzzling DCs need electricity to operate, apart from vast land area and much water. It is worth noting that DCs are already driving Tenaga’s earnings growth as more of these entities commenced operations in 2024.

The FBM KLCI heavyweight has seen its biggest increase in share price since 2012. It had soared more than 40% year to date to RM14.08 on Dec 24. Tenaga hit RM15.04 on Sept 24, its highest in five years. It is currently the fourth most valuable company listed on Bursa.

The utility giant saw electricity demand increase 7.6% in the first nine months of 2024, driven by the commercial sector (including DCs). During this period, eight DCs with a total demand of 1,100mw came online. Another eight DCs with a total demand of 1,900mw are under construction. The company’s presentation slide shows that as at June 2024, it had signed 31 electricity supply agreements (ESAs) with data centre operators for a total energy demand of 4,700mw.

Apex Securities has estimated Tenaga’s electricity sales to increase roughly 36% in the next 10 years, driven by DC developments.

“Tenaga expects potential electricity demand from data centres to exceed 5GW by 2035. Considering that data centres operate consistently, even at night, 5GW of electricity demand translates into 43,800GWh per year, which is equivalent to an impressive 35.6% of total electricity demand recorded in 2023,” the research house says in a Dec 24 report.

It adds that the rapid growth in DCs will lead to an urgent need for new power plants in the country. Thus, Apex Securities sees Malakoff Corp Bhd (KL:MALAKOF) as being well positioned to secure power plant projects to address the estimated 3.4GW capacity shortfall in gas-fired plants.

“These plants will play a crucial role in replacing the earnings contributions of the Prai Power Plant and Segari Energy Ventures, whose power purchase agreements expire in 2025 and 2027 respectively.”

According to MARC Rating, each DC must have at least two service providers connected with internet speed access of not less than 300mbps.

“Telcos in particular would be able to increase their revenue streams from core businesses by leveraging existing connectivity infrastructure,” the rating agency says in its draft exposure for DC methodology rating.

It is worth noting that both Telekom Malaysia Bhd (KL:TM) and Time dotCom Bhd (KL:TIMECOM) are also involved in the development of DCs. In June this year, Telekom will team up with Singapore Telecommunications Ltd to establish a data centre in Iskandar Malaysia.

According to Gary Goh, founder and director of Sprint DC Consulting, it will take time for utility companies to fully reap the benefits of the DC sector.

“Utility players such as Tenaga and Malakoff , as well as water players, will see benefits to their bottom line when the data centres are up and running. It will be a recurring income, which is a positive. But it is not clear at this point what the usage will be like and if it will come in phases,” he tells The Edge.

Goh is bullish on players in the telecommunications sector such as Telekom and Time dotCom and sees them as direct beneficiaries of the DC boom. “DCs require very high connectivity, and are driving content delivery and cloud services, which require internet connectivity,” he says.

Some compare the DC theme to the rubber glove craze that lasted less than two years during the Covid-19 pandemic. Glove stocks fell like a rock after the meteoric rise.

Goh points out that DCs are not an entirely new sector but one that has been around for years, which means the supply chain for components and parts for content in DCs is already established globally.

“I understand that there are companies that are aligning their businesses with the DC space, but the supply chain is already established. It does not matter where they are based, it’s about who their clients are. If you did not make money in the past from your existing business, just because we have a DC boom, how will that make a difference?” he says.

Nevertheless, Goh believes the government will look for ways to localise some of the content of the DCs in the country.

“As Malaysia’s data centre industry gains momentum, companies fall into two distinct groups: those that talk about benefiting from the boom and those actively proving their worth via contract wins. Several mechanical and electrical engineering firms fall into the second category and are securing high-value contracts and demonstrating their capability to meet the rigorous technical requirements of hyperscale developments,” he says.

“Some of these companies that invest in building technical proficiency and capability to meet tight project schedules are close to winning subcontractor jobs. These commercial breakthroughs further increase the number of Malaysian companies benefiting from this up cycle, hence validating the opportunities for local companies.”

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