Hong Leong Investment Bank Research said Wednesday that it sees widespread beneficiaries from Malaysia’s data center boom across sectors such as utilities, construction, renewable energy, sub-utilities, property, plantation and telco.

The research house said in a note that Malaysia is rapidly emerging as a key regional data center hub with total foreseeable data center capacity of 7.2 gigawatt (GW).

“Given the electricity guzzling nature of data centers, renewable energy capacity needs to be ramped up as well to ensure that the country’s net-zero target isn’t hindered,

“To support this, it is imperative for the national grid to be expanded and enhanced,” it said.

According to Hong Leong, as part of the broader strategy to become a leading digital economy in Southeast Asia, the Malaysian government has been actively promoting data center investments.

The data center space in Malaysia is experiencing significant growth, with approved investments totaling MYR 114.7 billion ($26.19 billion) between 2021 and 2023 – coming from the likes of Nvidia, ByteDance, Microsoft, Google, and Singtel.

“Looking ahead, the future of Malaysia’s data center industry appears bright,

“As global demand for digital infrastructure continues to grow, Malaysia’s role in the data center ecosystem is likely to expand,” it said.

Judging from Tenaga’s signed Energy Supply Agreement (ESA) for data center developments, Malaysia is set for an estimated 7.2GW capacity (and potentially hitting 11GW) in the coming years – putting it on track to become the third-largest data center market in Asia, after Japan and India, said Hong Leong.

As data centers are electricity guzzlers, the research house opined that it is crucial that the significant rise in energy consumption be met with an increase in renewable energy generation capacity to ensure that Malaysia’s net-zero objectives are met.

“We roughly estimate that 35-40GW of RE is needed (assuming solar) to power up 7.2GW of data centers,” it said.

To accommodate the growth of renewable energy and data centers, Hong Leong opined that it is imperative for the national grid to be upgraded – in this regard, Tenaga plans to invest MYR 35 billion ($7.99 billion) from 2025-2030 for energy transition grid enhancement.

According to the research house, expansion in Tenaga’s asset base will result to higher earnings for its transmission and distribution (T&D) segment, while its generation segment (including renewable energy) will benefit from the surge in
power demand.

On the other hand, YTL Power International Berhad (YTLP) offers direct exposure to green powered data center (500MW) and 53 percent owned Ranhill to gain higher allowable earnings from its larger assets base to satisfy the water gulping demand of data centers in Johor.

“We estimate there are MYR 130 billion to MYR 228 billion worth of data center construction value (based on an information technology [IT] load pipeline of 4.5-5.1GW),

“This will be a boon for reputable data centers builders,” said Hong Leong.

Hong Leong also pointed out that rollout of GET and CRESS would catalyze more renewable energy investments, auguring well for solar engineering, procurement, construction, and commissioning (EPCC) contractors.

Given the substantial infra requirements to cater for data center electricity demand and renewable energy ramp up, it also opined that this should be positive for those in the sub-utilities supply chain – e.g. smart grid, mechanical and electrical services (M&E) and cables.

It also reckoned planters that have higher potential to monetize their plantation land for data center/ renewable energy developments.

It also highlighted the data center boom has opened up new opportunities for property developers via land sales, build-and-lease data center to operators, or even participate in operating the data center.

Besides electricity and water, it noted high bandwidth connectivity has become the third critical utility in the data center industry – specifically fibre, and not only with domestic coverage, but extensive reach to international shores as well.

Malaysia approves 12 data center projects worth $20.9B greenlit from 2021 to June 2024 – report