KUALA LUMPUR (June 19): Telekom Malaysia Bhd’s (KL:TM) venture with Singapore Telecommunications Ltd to develop a data centre in Johor may offer a new growth driver for the state-owned fixed-line operator, analysts said.

The data centre investment will more than double TM’s effective data centre capacity and, “at the very least, open a new avenue of growth for TM”, said CGS International. TM will be responsible for operations though current demand and its strong partner will mitigate risks, the house noted.

“Investors, in our view, should take this investment positively as it could provide TM with an added earnings growth avenue”, that would provide higher return-on-equity in the future, CGS said.

On Tuesday, TM announced a 51:49 joint venture (JV) with the company better known as Singtel to develop a 64-megawatt data centre in Iskandar Puteri, Johor. TM’s equity commitment in the joint venture will be RM588 million out of the total estimated of RM1.15 billion.

The joint venture will acquire a land measuring over 168,000 square metres for RM178.23 million for the project that would have an ultimate capacity of 200 megawatts.

A large majority of analysts covering TM remained bullish with 16 “buy” recommendations, four “hold” ratings, and only two “sell” calls. The 12-month consensus target price stands at RM7.01, according to Bloomberg.

TA Securities is also positive about the JV that will further strengthen the position of TM in Malaysia. The company already has seven data centres across Malaysia and the proposed partnership will allow TM to leverage Singtel’s expertise and track record in developing state-of-the-art data centres, it said.

TM’s venture is “timely” to expand its data centre portfolio, said Kenanga Investment Bank. TM could tap its extensive network of digital infrastructure assets, including 32 submarine cable systems covering 340 kilometres with over 80 terabits per second of capacity, it flagged.

For Public Investment Bank, the proposed JV would "enable TM to tap the growing demand for data centres, driven by the adoption of cloud computing, artificial intelligence, e-commerce, edge computing, and 5G".

However, contributions will likely come in from 2029 onwards, assuming that construction of the data centre takes two years, the house flagged.

Shares in TM were down eight sen or 1.18% to RM6.73 at market close on Wednesday, valuing the company at RM25.83 billion. The counter has gained 24.5% since the beginning of the year.