Malaysia is rapidly emerging as a crucial hub for data centres in Southeast Asia, driven by the region’s growing demand for digital infrastructure and artificial intelligence (AI) development.

The country’s strategic location, lower operational costs, and supportive government policies are attracting significant investments from global tech giants and data centre operators.

Significant Investments from Global Multinational Companies (MNCs)

One of the most significant recent developments in this space is the move by GDS Holdings Ltd., a leading data centre operator based in Shanghai, China, with expectation of raising RM10.0 billion to expand their data centres operation in Malaysia.

In addition to GDS, other major global players are making substantial investments in Malaysia’s data centre industry. Google, for instance, has announced a US$2 billion (approximately RM9.1 billion) investment to develop its first data centre and Google Cloud region in the country.

Microsoft has also committed to a US$1 billion (around RM4.5 billion) investment, focusing on cloud services and data centre infrastructure as part of its broader digital transformation initiative in Southeast Asia.

Moreover, data centre focused players such as EdgeConneX is expected to setup 300 Megawatts (MWs) in data centres capacity, and Vantage to put in significant investment of US$3 billion (around RM13.5 billion) for data centre campus in Cyberjaya.

Why Malaysia?

Malaysia’s appeal as a data centre hub is multifaceted. The country offers competitive advantages in terms of cost-efficiency, with lower operational expenses compared to neighbouring countries like Singapore.

Moreover, Malaysia’s well-established infrastructure, skilled workforce, and strategic location make it an ideal destination for supporting not only local but also regional data centre needs.

The growing demand for data centres in Asia, particularly in Southeast Asia, is staggering. According to data from Cushman & Wakefield, the demand for such infrastructure is expected to increase by 25% annually through 2028 in the region, far outpacing the 14% projected growth in the United States.

This surge is being driven by the increasing reliance on digital services, AI, and cloud computing, as well as by companies diversifying their operations beyond their home countries due to geopolitical risks.

Economic Impact and Job Creation

The expansion of data centres in Malaysia is not just a win for the tech industry — it’s also a significant boost for the local economy.

The Malaysian Digital Economy Corporation (MDEC) has emphasised that the establishment of these centres will create substantial job opportunities across various sectors, including IT, engineering, construction, and manufacturing.

Data centres require a wide range of technical and operational expertise, from the initial construction phase through to ongoing management and maintenance.

As the industry grows, so too does the need for skilled professionals in areas such as cybersecurity, network operations, and infrastructure management.

Sustainability and Energy Efficiency

However, the rapid growth of data centres also brings challenges, particularly in terms of energy consumption. Malaysia’s data centres could consume as much as 5,000 megawatts (MW) by 2035, necessitating a strong focus on sustainability.

Companies are increasingly looking to renewable energy sources, such as solar power, to reduce their carbon footprint and ensure a sustainable supply of energy.

Government initiatives are also playing a crucial role in promoting energy efficiency within the sector.

MDEC has highlighted the importance of implementing energy-efficient technologies and practices, as well as supporting renewable energy adoption through programs like the Corporate Renewable Energy Supply Scheme.

Who are the Beneficiaries?

As the data centre sector in Malaysia continues to expand, several key players have already experienced significant upward movement in their share prices, including YTL Power, Gamuda, MN Holdings, and Jati Tinggi.

However, Southern Score Builders Berhad (SSB8) remains an interesting opportunity for investors, especially as the company prepares for its Extraordinary General Meeting (EGM) on 30th August 2024.

SSB8 is set to venture into the data centre sector through its strategic acquisition of a 51% stake in SJEE Engineering Sdn Bhd (SJEE) for approximately RM23.0 million.

SJEE, which currently has an order book of around RM30.0 million, specialises in mechanical and electrical (M&E) works — a crucial component in data centre construction. We have heard that it has proven track record in completing data centre jobs for global MNCs.

This acquisition is expected to create synergistic effects in cost savings at the group level, while also positioning SJEE to strongly participate in upcoming data centre projects.

Furthermore, SJEE has provided a profit guarantee of RM15.0 million over the next three financial years, which will contribute to stronger profitability for SSB8.

Unlike other players that have already seen substantial share price increases, SSB8’s share price has not yet reflected these potential gains, offering investors a unique opportunity to capitalise on the expected growth following the approval at the upcoming EGM.

And finally, under our channel checks with several players in the data centre field, SJEE is currently actively biding for data centre projects.

Upon completion of the acquisition of SJEE, hopefully we can see more significant announcement by SSB8 if the new subsidiary is able to secure data centre projects.