TM set to benefit from rising number of data centres

New hyperscale data centres could leverage TM Global’s extensive network of digital-infrastructure assets.

PETALING JAYA: Telekom Malaysia Bhd (TM) could be a key beneficiary of Microsoft’s proposed US$2.2bil investment in Malaysia as this will result in a surge in data transmission for data centres that host public and private cloud systems.

However, the earnings impact for TM may not be immediate.

According to Kenanga Research, there will be sustained strong demand for submarine cables and landings that connect data centres to global networks.

TM will be able to capitalise on this via its established network of digital infrastructure.

Microsoft recently said it plans to invests US$2.2bil in cloud computing and related advanced technologies, including generative artificial intelligence (AI) in Malaysia.

As it is, TM One’s existing portfolio comprises eight tier-3 data centres in Malaysia and one in Hong Kong

This translates to a total capacity of 46 megawatt (MW) over total space of 269,000sq ft.

The key centres include the Klang Valley Core Data Centre (20MW) in Cyberjaya, and Iskandar Puteri Core Data Centre (20MW) in Johor.

Kenanga Research said that operators of hyperscale data centres are investing to cater to the surge in storage capacity requirements required by generative AI cloud offerings.

New hyperscale data centres could leverage TM Global’s extensive network of digital-infrastructure assets.

The timing may also be ripe for TM to embark on a significant expansion of its data-centre business, the research house added.

Kenanga Research estimated that TM’s potential new hyperscale data centre could generate an internal rate of return of 12.6%, with a project-payback period of about eight years and net value of 13 sen per share.

For now, the research house is maintaining its target price of RM7.22 a share based on 5.5 times financial year 2024 enterprise value/earnings before interest tax depreciation and amortisation. It has a “outperform” call on the stock.

The research house likes TM on account of it being leveraged towards secular data growth on the back of current trends such as digital transformation, proliferation of the Internet of things (IoT) and generative AI.

TM also benefits from the roll-out and monetisation opportunities from the second phase of the national digital network project, and sustained traction in its cost optimisation initiatives.

The risks cited to its call include higher-than-expected erosion in wholesale revenues from new pricing structures, pricing pressures at the retail segment arising from policy-led directives, and irrational competition in the retail fibre broadband space.