May 8, 2024 - The Malaysian stock has recently seen a notable uptick in the performance of $YTL (4677.MY)$ and its subsidiary $YTLPOWR (6742.MY)$. YTL Power has risen by over 28% since April 17, and YTL's increase is even higher, with a gain of over 36% since the same date.
Investments in data centers and developments in infrastructure in Johor
According to Baxtel, Johor has emerged as Malaysia's largest data center market, ranking ninth in the Asia Pacific region. This surge is attributed to the region's ability to attract multinational corporations (MNCs). With a current tally of 13 data centers and another four under construction, Johor encompasses more than 1.65 million square feet dedicated to this sector. This rapid expansion in the data center industry is fueled by both the proximity to Singapore and some industrial transfers, which has driven companies to seek alternative locales for their digital infrastructure.
A recent report by Channel News Asia highlighted the significant spillover effects of these global events on southern Johor, which has seen cheaper land and operating costs, including water and power, drawing in major players such as Nvidia, AirTrunk, GDS International, YTL Power, Princeton Digital Group, and even tech giant Microsoft. In particular, Microsoft's land acquisition in Kulai signals confidence in the region's potential as a data center hub.
The Malaysian government has also played a pivotal role by developing industrial parks like Sedenak Tech Park (STeP) and Nusajaya Tech Park, which are designed to support such ecosystems. Zerin Properties expects Johor to attract RM17 billion (US$3.6 billion) in new data center investments this year, adding to the RM51.1 billion invested in 2022. This investment is likely to contribute to YTL and YTL Power's stock performance as the company is heavily involved in this sector.
YTL Power's Performance and Prospects
Turning to YTL Power's stock performance, analysts have been bullish, with Malaysian investment banks setting an aggressive target price of RM6.25. Given the current market price of approximately RM4.90, this suggests a potential upside of 27.5%. The future looks promising for YTL Power as the 100-megawatt data center is anticipated to commence operations by the end of 2024, contributing to full-year revenue. With an estimated 20% profit margin on projected revenue of RM7 billion, the AI data center could generate RM1 billion in profits. The non-AI data centers in Sentul and Johor are expected to contribute RM5.3 million and RM16.8 million, respectively. Moreover, the data center in Jurong Island, Singapore, is set to provide a stable and sustainable base income. The collaboration with Nvidia, combined with low land and energy costs, is a competitive edge for this facility.
It is worth noting that recently, YTL and YTL Power may have issued a significant amount of employee stock options (ESOS) at exercise prices much lower than the market price to incentivize high-performing executives or employees. This will increase the total outstanding shares of the company. Employees who hold stock through ESOS have a lower cost basis, and if they sell a large amount of stock, it could have an impact on the stock price.