YTLPOWR is collaborating with Nvidia Corp to build Al infrastructure at its data centre park in Johor by mid-2024. This will elevate YTLPOWR to a “managed service provider” from a “colocation provider”. Nvidia technology will also give this data centre an edge over its rivals in the region. We keep our forecasts but raise our TP by 9% to RM3.06 (from RM2.82). Maintain OUTPERFORM.

YTLPOWR is collaborating with US-based chip giant Nvidia Corp to build AI infrastructure powered by Nvidia AI Enterprise software in its 500MW solar-powered YTL Green Data Centre Park in Kulai, Johor. This will bring the fastest supercomputers to Malaysia by the middle of 2024.

With this collaboration, YTLPOWR is now a “managed service provider” where it goes beyond providing a physical space and infrastructure, it also offers a range of managed services including software - in this case it will use Nvidia’s chip, software and equipment, before leasing them to its customers. Currently, YTLPOWR is a “colocation provider” where it provides space to customer, for instance it leases its space to Sea Ltd for the latter to house its own servers, equipment and other hardware.

We now put a RM2.65b DCF value for the data centre business based on WACC of 7.8%, which includes: (i) 48MW Phase 1 based on capex of RM1.5b, (ii) Nvidia-collaborated date centre which we assumed 50MW capacity with capex of RM2.0b.

To refresh, this 500MW Data Centre Park is a RM15b development program to be ready by 2030. Sea Ltd (the parent company of Shopee) has agreed to take up 32MW of Phase 1 (total 48MW for Phase 1 with capex of RM1.5b) with first batch of 8MW coming online by 1QCY24. Additionally, 168MW capacity in the same data centre campus comprising eight individual data centre facilities will be co-developed with GDS Holdings, a leading developer and operator of highperformance data centres in China. The first phase of this parcel will commence service next year.

Forecasts. Maintained as we do not expect contribution from the data centre during our forecast period.

Valuations. However, we upgrade our SoP-derived TP by 9% to RM3.06 (from RM2.82) as we now have a 33 sen/share DCF valuation for the data centre, from only 9 sen/share previously. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We continue to like YTLPOWR for: (i) its earnings stability backed by various regulated assets globally, (ii) the robust earnings prospects of PowerSeraya, and (iii) longer-term growth potential from its data centre and digital banking ventures. Maintain OUTPERFORM.

Risks to our recommendation include: (i) stringent ESG standards in developed markets, (ii) regulatory risk in the power sector in Singapore, (iii) the new data centre business fails to take off, and (iv) sustained losses at YES.

Source: Kenanga Research - 11 Dec 2023