Explore Johor's Digital Landscape: Top Investment Opportunities in Data Centers

Riding the global AI wave, Malaysia is advancing digital transformation and cloud technology adoption. As key infrastructure, data centers are becoming a significant component for Malaysian enterprises and the government.

Driven by multinational companies' investments, Johor has risen to become the country's largest data center market. With a strategic location and abundant land resources, Johor currently hosts 13 data centers covering over 1.65 million square feet, with an additional 4 under construction.

1. Geographically, Johor is adjacent to Singapore. The Johor-Singapore Causeway spans the Johor Strait, connecting Johor Bahru in Malaysia with the Woodlands district in Singapore.

2. The cost of land, water, and electricity in Johor is lower than in Singapore, prompting many Singapore-based multinationals to expand into Johor to capitalize on the state's lower costs for data center construction.

3. Government policies support Johor's development, including a series of incentives expected to create 100,000 high-paying jobs. In the first half of 2024, a series of construction contracts will be awarded, including the RTS metro, the JS-SEZ Project, and the Gemas-Johor Bahru double-tracking project.

Microsoft CEO Satya Nadella announced on May 2nd a $2.2 billion investment in building AI infrastructure in Malaysia and plans to purchase land in Kulai, Johor, for a new data center. This investment marks Microsoft's largest in its 32-year history in Malaysia.

Last year, Nvidia collaborated with YTL Power to establish a $4.3 billion AI data center park in Johor. Additionally, ACWA Power, Alphabet, and Google have expressed potential interest in local digital infrastructure investment during online meetings with Anwar.

These investments are expected to bring in substantial capital inflow. According to Zerin, a Real Estate Agency in Malaysia, Johor's data center market has attracted significant foreign investment over the past few years, with this year's projected investment amounting to 17 billion ringgit.

As the world's largest palm oil producer by area, Sime Darby Plantation is venturing into green industrial parks. SDP has stated that renewable energy is expected to make a significant contribution to the group over the next five years. Looking ahead, the company will identify less productive agricultural lands to convert them into solar farms.

The company announced on May 8th the development of the KIGIP project for a solar power plant. The news propelled the stock price to a two-year high of 4.73 ringgit during trading that day. Maybank Investment Bank expects Sime Darby Plantation to further benefit from this large-scale solar project and notes that the group is exploring opportunities with partners to develop more data centers, which typically have high energy consumption.

Analysts say that given Sime Darby Plantation's vast land bank, the stock could potentially benefit from the green industrial park, large-scale solar projects (LSS), and the demand for data centers.

YTL Corporation is a prominent Malaysian infrastructure conglomerate, with its subsidiary, YTL Power, primarily engaged in the electric utility industry, generating and distributing electrical power across Southeast Asia. MIDF analysts have noted that YTL has made some encouraging progress over the past few months. Since being included in the FBM KLCI in December last year, YTL Corp Bhd and its subsidiary YTL Power International Bhd have risen to the top 15.

In December last year, the company announced a collaboration with Nvidia to build anartificial intelligencedata center in its YTL Green Data Center Park in Johor. CGS International has stated that YTL Power's projected 22 billion ringgit investment in data centers over the next three to five years could contribute a net profit of 1.2 to 1.4 billion ringgit. The firm stated: "The data centers, coupled with the gas plant in Singapore, can enhance YTL Power's net attributable equity value by about RM11 billion, on our estimates,"

According to RHB IB, YTL's current share price is still undervalued. The firm mentioned that the growth of data centers is one of the catalysts for YTL Corporation's share price.

Ranhill SAJ Sdn Bhd is the exclusive provider of water resources to tap water in Johor, responsible for the extraction, treatment, distribution, and sale of raw water. The company currently manages 46 water treatment plants in Johor, with a total daily processing capacity of 2.3 billion liters, serving about 3.8 million local residents through a network of 23,000 kilometers of pipelines.

At the end of last year, Ranhill Utilities announced the renewal of its license issued by the National Water Services Commission (SPAN) to process and supply water for consumers in Johor over the next three years. According to data from MIDF Research, the company's latest non-revenue water (NRW) contract in Johor is set to expand the group's services division's order book by over 40% to RM940 million. MIDF Research reported that the latest contract win is a welcomed development, following slower job wins this year."

The latest outstanding order book should provide strong earnings visibility over the next three years."