Rise of data centres a boon for Critical Holdings

PETALING JAYA: The expansion of data centres (DCs) in Malaysia bodes well for Critical Holdings Bhd’s prospects in terms of replenishing its order book and growing earnings.

The Penang-based company’s specialised mechanical, electrical and process utilities (MEP) engineering solutions are mainly targeted at the semiconductor and DC industries.

Phillip Capital Research noted the MEP industry is set to sustain its 15% compounded annual growth rate over 2022-2025 to hit RM10bil in value, driven by growth of end-user industries, higher investments, increased outsourcing and relocation of electrical and electronics manufacturing activities into Asean as a result of trade diversion and the expansion of new technologies such as 5G, the Internet of Things, artificial intelligence and big data analytics.“Critical Holdings is well-positioned in the structural growth industries, including semiconductor, DC, telecommunication and solar.

“The growth in these industries is positive for the demand for MEP engineering, where clean rooms and plant rooms are critical facilities required for the respective operations,” the research firm noted in a report on the company.

US tech giants such as Nvidia, Amazon, Google and Microsoft as well as others have committed to investing in DC infrastructures in Cyberjaya, Sedenak Tech Park, Nusajaya Tech Park and YTL Green DC Park in Johor.

There are some 10 to 15 DCs under construction in the country, Phillip Capital noted.

Critical Holdings’ tender book stands at RM1.2bil.

In anticipation of more work opportunities, the company has been raising its capacity and capabilities.

It will be setting up a new regional office in the central region to support its expansion to the central and southern regions, where there are DC opportunities.

Critical Holdings also planned to expand its sales and technical team by hiring an additional 51 employees, adding to the current workforce of 63 individuals, the research house noted.

“We gather the upcoming projects Critical Holdings is currently tendering have a larger package value ranging between RM50 to RM100mil.

“This is positive as it signifies its ability to take on large-scale projects, which are likely to come with higher project margins,” the research house said.

“We estimate Critical Holdings’ potential involvement in a RM1bil DC project is about RM200mil, representing 20% of the overall project size,” it estimated.

Critical Holdings’ return on equity stood at 60% in the financial year 2023 (FY23) and is expected to rise to 69% in FY24. This is above its MEP industry peers’ average of 30%.

Phillip Capital added that Critical Holdings had a strong balance sheet with a net cash position of RM49mil or 13 sen a share, which offered the company room to grow its business inorganically via possible mergers and acquisitions. It also targets to pay out 25% of its earnings.