Too many ASEAN data centers? Malaysia needs to ensure the advantage of water and electricity supply.

(Kuala Lumpur, 22nd) After Malaysian investment bank met with 15 investors from Malaysia and Singapore, they held an online briefing with 120 participants, only to find market participants worried about the excess risk of data centers in the ASEAN region despite their vigorous growth!

The Malaysian investment bank's research report pointed out that investors are concerned that despite the frequent news of data center projects in the ASEAN market, the seemingly dynamic new theme may face obstacles in implementation and operation due to pressure on water and electricity supply and the lack of participation by large listed companies.

However, Daryl Dunbar, a partner in digital infrastructure at the Internal Consulting Group with 25 years of experience in the industry, believes that the above-mentioned excess risk is limited.

According to the Malaysian investment bank's research, those with such doubts are indeed in the minority, as there still exist large market spaces to be developed in Manila, Philippines, and Ho Chi Minh City, Vietnam.

On the other hand, the cumulative planned capacity in the regional market is currently 6 gigawatts (GW), which is four times higher than the existing operational capacity. Only one-third of it is under construction or planned, while the rest are all in the early stages.

Some investors are concerned that the hype around data centers may only artificially inflate stock prices, and there is a fear that new projects may not actually materialize into operational capacity.

Research by Ma Investment Bank suggests that the newly announced data centers, still in the early stages, will be operational to meet market demand.

Darril also coincides in the belief that large enterprises in the market continue to drive demand, making the absorption of new data center capacity relatively easy.

Despite market experts' view that in regional markets like Malaysia, even listed companies only indirectly participate in data center projects, Ma Investment Bank research emphasizes that the hype in this sector may prevail long term, with the value-added trend expected to last 5 to 7 years.

Darril is confident that the current capital markets are active, and even in the absence of publicly listed companies directly involved, some private companies are likely to go public in the short term.

In any case, among the 9 data center concept stocks recommended for buying by Ma Investment Bank, 4 are publicly listed companies on the Malaysian stock exchange.

Data centers require a large amount of water and electrical resources, which happens to hit the concerns of investors in Malaysia, because local hydroelectric resource development may constrain the construction of data centers in Malaysia, especially when there are favorable conditions in the ASEAN market, China may lose its advantage!

According to a Malaysian investment bank research, the news of constructing data centers in Malaysia may decrease and begin to diverge, thereby alleviating the pressure on infrastructure.

In the state of Johor, for a 1 or 2 gigawatt data center, the water usage accounts for 3% to 6% of the total water usage in Johor. However, the water usage efficiency (WUE) of data centers and water supply facilities in Johor will both improve, indicating that water supply is not actually a challenge.

Daryl bluntly stated that the bottleneck in the construction of data centers is the excessive time consumed by the cooling electrical appliances, including generators, during preheating, rather than the concerns of investors about the restriction of water and electricity supply.

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Four Malaysian stocks are the top picks for the data center theme of Malaysian banks:

Rating: Buy

Target price: 4.70 ringgit

Comments:

YTL Power International currently owns two datacenters, with plans to develop a new 72 megawatt (MW) datacenter in Johor. As one of Malaysia's powerhouses, YTL Power International is collaborating with the American semiconductor giant Nvidia to jointly develop artificial intelligence (AI) in the Johor data center complex.

YTL Power International is expected to benefit from the complete process of the datacenter supply chain, including power generation, water supply, wastewater treatment, and even telecommunications and industrial development in the surrounding areas.

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Rating: Buy

Comments:

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Rating: Buy

Target price: 8.70 Ringgit

Comments:

Kwasa Damansara, a subsidiary of Sime Darby Property (SIMEPROP, 5288, main board property stock), has secured the Elmina commercial park in Shah Alam, Selangor with a total value of 0.815 billion Ringgit datacenter project contract.

Additionally, it has also acquired the 0.929 billion Ringgit datacenter mechanical and electrical refurbishment project from Malaysia's Pearl Computing Sdn Bhd. It is worth mentioning that this marks Kwasa Damansara's first datacenter project with a total value of 1 billion Ringgit.

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Rating: Buy

Target price: 1.84 ringgit

Comments:

For datacenters with high electricity consumption, the demand for renewable energy is still high, benefiting pure solar energy projects, procurement, construction, testing (EPCC), as well as solar and waste-to-energy businesses.

Among them is Solarvest, currently operating a 50 megawatt (MW) 4th largest solar project (LSS4), as well as a 90 megawatt Corporate Green Power Purchase Agreement (CGPP).