KUALA LUMPUR: Malaysia is poised for significant data centre (DC) growth in 2025, fuelled by substantial capital expenditures (capex) from major technology companies.
Kenanga Research said as Malaysia ushers in 2025 with a keen focus on artificial intelligence (AI), global big tech firms are still very much in the generative-AI rush, racing to get ahead of competition.
This anchors big tech's still-bullish guidance on 2025 capex, especially in chips, server and DCs, which in turn, is giving confidence that Malaysia is set for a strong 2025 growth in DC build-out and fit-out plays, cloud adoption as well AI-related themes, including GPU-as-a-service.
The firm said the mix of DC workload to cater to AI will outstrip the growth that comes from just enterprises moving onto cloud.
"For Malaysia, there is no slowdown in the race to build out data centres that are suited for AI.
"For instance, ByteDance has stated its intention to make Malaysia as an AI hub, with additional investment potential of RM10 billion, while also bringing in supply chain investment to the tune of another RM1 billion," it said.
Additionally, Malaysia has been the main beneficiary of proximity to Singapore, enjoying the spillover effect as Tenaga Nasional Bhd had seen demand in applications of up to 11GW of power for new DCs.
While Malaysia has been and continues to be the beneficiary of high DC demand due to Singapore's spillover, Kenanga Research said competition in the region intensifies as big tech spreads out investments, namely Thailand.
Although Malaysia has set more regulations for sustainability which require DC roll-outs to be more attentive to local resource needs, the firm said these are not seen to be restrictive towards getting new business.
Nevertheless, contractors are looking at innovative delivery approaches to secure DC work.
For example, Gamuda Bhd is in talks to build water treatment plant able to cater for several DCs at one go.
Kenanga Research said Malaysia's DCs are now moving into market rate for solar, with the recent signing of a heads of terms between Bridge Data Centres and TNB on bilateral energy supply under Corporate Renewable Energy Supply Scheme (CRESS).
TNB in recent quarter indicated that the take-up in electricity for DCs in operation rose to 248MW, 15 per cent of the completed 1.7GW of DCs.
"There is a potential demand growth opportunity of 7,200MW, including 31 projects (equal to 4,700MW) for which electricity supply agreements (ESAs) are already signed.
"We have an assumption of about 700MW of new rollouts every year in data centres. The likelihood of our numbers being exceeded is high, if the pipeline that TNB is seeing materialises," the firm added.
In an optimistic scenario, Kenanga Research said the sectors with the greatest potential for growth are expected to be construction and property, followed by utilities, technology and telecommunication.
In terms of leverage to DCs, the firm noted that technology and the construction space contribute most to valuations at the moment.
"These are respectively more than 30 per cent of target price and above 20 per cent for construction names.
"Under an optimistic scenario, our target prices are at the magnitudes of up to 40 per cent higher for the names that we cover. Risks to our call would be a pullback in AI/DC spending," it said.