Mushrooming DCs to positively impact sector

The construction sector’s prospects are looking up on the back of Malaysia successfully positioning itself as a key player in the data centre (DC) market, coupled with the anticipated rollout of government-initiated mega infrastructure projects.

TA Research, which has maintained its “overweight” call on the sector, noted the DC capacity in Malaysia is on track for significant expansion, with projections indicating an increase from 195 megawatt (MW) to 607MW by 2025.

The research house said the growth is backed by substantial investments and rising demand for co-location services, underscoring the need for robust and scalable data storage solutions.

The investments in Malaysia are expected to meet these needs, TA Research noted.

“With the average construction cost of a DC in Malaysia ranging from RM35mil to RM50mil per MW, as outlined by the Research and Market’s report, the projected 607MW expansion translates to a gross construction value of RM21.2bil to RM30.4bil,” it said.

TA Research added such investments amounts are bound to benefit local players in the construction sector and industries related to building data centres.

Another key upside to the construction sector is the investments that have come in between 2021 and March 2023, totalling to some RM76bil.

TA Research said from 2021 to 2026, the Malaysian DC market is projected to grow at an average rate of 16% or US$2.1bil annually.

The surge in artificial intelligence and content consumption is also expected to further heighten demand for extensive data storage and computational power.

“We expect the demand for new DC setups in Malaysia to remain robust over the next five years due to the increasing need for sophisticated data infrastructure.

“This outlook is supported by government tax incentives aimed at attracting foreign investment to new data centre developments in the Klang Valley, Johor and potentially Sarawak and Kedah regions,” the research house added.

Furthermore, TA Research said Malaysia’s strategic location, lower operational costs and government support will be key drivers in accelerating DC growth in the country.

“Measures like the rollout of 5G technology, expanding fibre connectivity and integrating renewable energy sources to power DCs will create an optimal environment for data centre operations and attract major international technology companies,” it said.

These drivers have resulted in global tech giants like Microsoft, Amazon Web Services (AWS), Alibaba, Huawei, Nvidia and Google announcing significant investments in Malaysia.

“AWS, for instance, has pledged RM27.6bil to establish a cloud region in Malaysia. This significant investment will greatly enhance the nation’s DC capacity and capabilities.

“These projects are not only propelling the sector’s growth but also positioning Malaysia as a preferred destination for hyperscale DCs,” it said.

Meanwhile, TA Research said it expects Gamuda Bhd to secure more DC projects by leveraging its industrialised building system capability for expedited construction.

It also anticipates Sunway Construction Group Bhd will secure more DC projects due to its established industry track record.

“We believe the group is a stronger contender for construction packages for Equalbase’s upcoming DC at Sunway City Iskandar Puteri.

“Its vertically integrated expertise in construction enables it to deliver projects with short lead times, reinforcing its position as a frontrunner in this sector,” said the research house.

As for IJM Corp Bhd , the company is set to gain more exposure in the DC space after its maiden job late last month.

TA Research added Gadang Holdings Bhd will also benefit from the growing industry, as there is potential to secure projects from Telekom Malaysia Bhd (TM), by leveraging its strong business relationship with TM since Gadang has been one of TM’s vendors for years.

Source: The Star