RHB Investment Research Reports

Telecommunications - the Rise of Data Centres in ASEAN

Publish date: Thu, 13 Apr 2023, 09:51 AM
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  • At the cusp of hyper-growth. This thematic report captures the dynamics of the data centre (DC) market across Malaysia, Singapore, and Indonesia. We believe the report is timely, considering the explosion of interest in the DC space, accelerated digital adoption, and the good valuation premiums fetched for strategic infrastructure assets. According to Frost and Sullivan, the three markets are expected to account for a combined c.74% of the USD5.7bn ASEAN DC market by 2025. The positive DC outlook resonates well with our preference for fixed line plays.
  • Malaysia is seeing accelerated DC capacity plant-up, with hyperscalers making landfall. Malaysia is seeing a raft of new/emerging DC investments with over 800MW capacity projected to come on stream in phases over the next five years, with lower land and energy costs as the key draws. Singapore’s decision in early 2022 to calibrate new DC builds has been a blessing in disguise, with the likes of Equinix, AirTrunk, Yondr Group, and GDS Holdings locating their maiden facilities in Malaysia’s southern state of Johor. More importantly, we view the setting up of cloud regions by Microsoft and Amazon Web Services (AWS) as a major coup with significant upsides for the domestic DC industry and the economy.
  • Indonesia charting new leg of DC growth from greater digital adoption. The Indonesian DC market is expected to grow at a 6% CAGR between 2022-2028 to USD3.1bn, according to Arizton Advisory and Intelligence’s Mar 2023 report. Growth will be fuelled by rapid capacity expansion by hyperscalers, data localisation regulations, and as internet penetration closes the gap with its ASEAN peers. Indonesia is already home to multiple cloud regions by Google, Alibaba, Amazon, Huawei, and Microsoft with Batam Island emerging as the new DC economic zone.
  • Singapore’s calibrated DC growth is squeezing inventory resulting in overflow to neighbouring hubs. While Singapore continues to be the epicentre of DC growth in South-East Asia, the more stringent conditions laid out for new builds have compelled investors to consider alternative sites/hubs in the region. The regionalisation of the DC business is a key focus area for Singtel, with c.70MW capacity to be added over the next 3-5 years from its Indonesia and Thailand JVs. The expansion will see its DC footprint expand to >170MW regionally from ~70MW in Singapore currently.
  • DC stock ideas: Singtel, Telekom Malaysia (TM), Telekomunikasi Indonesia (TLKM), Time dotCom (TDC), Indosat Ooredoo Hutchison (ISAT), YTL Power (YTLP), XL Axiata (XL) and DCI Indonesia (DCII). With the exception of DCII – an IDX-listed pure-play DC – the featured names are telco proxies providing managed and co-location services with ownership of large DC assets. Of these, Singtel, TDC, XL, and ISAT have partnerships with established DC investors and/or hyperscalers. Secondary beneficiaries include pure-play SREITS- Keppel DC REIT and Digital Core REIT. We feature MN Holdings and Sunway Construction as budding DC contractors in Malaysia.

Source: RHB Securities Research - 13 Apr 2023

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