We expect 2025 to be a year of strong execution, with global cloud providers committing to a robust pipeline of new data centre projects totalling 1,311MW, compared to just 505MW of live capacity as of Dec-2024. Although macro uncertainties may cause a near-term slowdown in the data centre growth, we remain optimistic about its long-term outlook. Any slowdown is likely a minor hiccup rather than a structural shift. That said, we have adjusted our PE multiples for power ancillary players downward to reflect a more conservative base-case scenario, underpinned by more moderate expectations for electricity demand growth. The recent weakness in share prices of power ancillary players presents an attractive buying opportunity for investors. Maintain OVERWEIGHT rating on the sector, with top picks being CBHB (TP: RM0.45), UUE (TP: RM0.83), PEKAT (TP: RM1.43), and SCGBHD (TP: RM1.42).
Accelerating electricity demand through RP4. Electricity demand in Peninsular Malaysia is accelerating, now matching GDP growth due to the expansion of data centres (DCs) and AI infrastructure. Strong commitments from cloud service providers, including Amazon Web Services, Tencent Cloud, Google Cloud, and others across the Asia-Pacific region have supported DC expansion and, in turn electricity demand growth.
A year of execution. 2025 is expected to be a year of execution, as global cloud providers have committed to a strong pipeline of new DC projects totalling 1,313MW, significantly higher than the 505MW of live capacity as of Dec-2024, 12 projects in peninsular Malaysia with a combined maximum demand of 2.2GW that have signed electricity supply agreements (ESAs) but are yet to be delivered. Based on our back-of-the-envelope calculations, this requires approximately 12 to 13 new 275kV/33kV substations. The actual amount is likely higher at 15-18, taking into account redundancy and reliability requirements typically demanded by DC operators.
Capex growth to benefit M&E players. In Regulatory Period 4 (RP4), the allowed capex has increased by 108% to RM42.8bn, comprising RM26.6bn in base capex and RM16.3bn in contingent capex. Of this, base capex includes only DC projects with signed ESAs. Given the substantial number of DC projects yet to commit to an ESA, TNB anticipates that 60%–70% of the contingent capex will be triggered. The surge in RP4 capex is poised to benefit electrical contractors, mechanical and electrical (M&E) service providers, underground utility solution providers, and electricity distribution equipment manufacturers over the near to medium term.
Data centre investments only expected to go through a minor hiccup. Concerns of DC growth have surfaced since early this year, driven by the AI Diffusion Framework and the rollout of Deepseek. These concerns have been further compounded by tariff uncertainties in the US, prompting several DC operators to pause or delay investments pending greater policy clarity. Nonetheless, we believe the current slowdown in DC investments reflects a temporary headwind rather than a structural shift. For instance, while AWS has paused or restructured some international projects, it has reaffirmed a RM29.2bn commitment to Malaysia through 2038. Furthermore, NVIDIA’s continued ramp-up of H100 and B100 GPU production signals sustained hyperscaler demand.
Maintain Overweight. While we acknowledge a potential slowdown in the data centre growth due to macroeconomic uncertainties, we remain positive about the longer-term outlook.In response to shifting market sentiment, we have lowered the price-to-earnings multiples in our valuation of power ancillary players, reflecting a more conservative base-case scenario with more moderate electricity demand growth. The recent weakness in share prices of power ancillary players presents an attractive buying opportunity for investors. Maintain OVERWEIGHT stance on the sector. Our top small-to-mid-cap BUY recommendations include CBHB (TP: RM0.45), UUE (TP: RM0.83), PEKAT (TP: RM1.43) and SCGBHD (TP: RM1.42).
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.210973 | 4.249411 |
EUR | 4.954495 | 4.965490 |
CNY | 0.589445 | 0.590817 |
HKD | 0.536642 | 0.541158 |
SGD | 3.306006 | 3.333319 |