Telekom Malaysia Berhad - Partnering with Singtel to Develop a New Data Centre in Johor

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Setting Up a New Data Centre in Johor

Telekom Malaysia Bhd (TM) has proposed to set up a joint venture (JV) with Singtel's regional data centre arm, Nxera MY Pte Ltd (Nxera), to develop a data centre in Johor, Malaysia.

With an initial investment cost of RM1.2bn, the proposed greenfield data centre will be equipped with high power density and feature advanced technologies such as liquid cooling and large computing capabilities in order to support heavy workloads and operations. The four-storey building is designed for 64 megawatts (MW) and could be scaled up to 200MW based on market demand. The data centre is envisioned to be a cloud-enabled Tier 3 facility and it is expected to be operational in 2026.

TM will hold a 51.0% stake, while Nxera will hold the remaining 49.0% in the JV. Both TM and Nxera will provide proportionate equity funding to support the development and operation of the data centre. Meanwhile, the JV has signed a conditional sale and purchase agreement with River Retreat Sdn Bhd to acquire a 168,959 square metre freehold land in Pulai, Johor Bahru, for the proposed data centre.

The proposals are subject to approval by an Extraordinary General Meeting as well as consent from any other authorities or parties. The proposed joint venture is estimated to be completed in 2H2024, while the proposed acquisition is expected to be completed by 1H2025.

Our View

Overall, we are optimistic about this development as it will further strengthen TM's leading position in Malaysia's data centre landscape. Currently, TM has 7 data centres across Malaysia. The proposed partnership will enable TM to leverage Nxera's strong expertise and proven track record in developing stateof-the-art data centres.

Meanwhile, TM will continue to capitalise on its core competitive strengths, including its extensive submarine and fibre optic cables, which are crucial for data centres. This network backbone will provide vital connectivity between Malaysia and other regions. In all, we believe the JV will have a strong competitive edge to capture the rising demand and opportunities from the next generation of AI application providers and multinational companies.

Based on TM’s initial shareholding percentage of 51.0%, the group will inject about RM588.0mn into the JV. We believe funding will not be an issue given that TM has a solid balance sheet with net debt/EBITDA of 1.0x and a cash balance of RM2.4bn as of 1QFY24.


No change to our FY24-FY26 earnings projections at this juncture, pending further guidance from management.

Valuation & Recommendation

We take this opportunity to raise the terminal growth rate of TM from 1.5% to 2.0%, given the group is expected to benefit from the data centre boom over a longer term. Consequently, we tweaked the TP higher from RM7.18 to RM7.70 based on DCF valuation with a WACC of 8.5% and LT growth rate of 2.0%. Maintain our Buy recommendation on TM.

Source: TA Research - 19 Jun 2024

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