DC sprint needs deep pockets

THE United States’ power crunch could become Johor’s gain, if YTL Power International Bhd has its way.

American data centre (DC)operators are looking abroad to expand and YTL Power, which has Johor’s water supply effectively in its control, is in the right window to capitalise.

Water supply is a crucial factor to run DCs.

Fresh from completing its Nvidia-powered artificial intelligence DC last October, YTL Power is planning to more than double the capacity of its DC hub in Kulai.

From the initial target of 500 megawatt (MW), YTL Johor Green DC park in Kulai is now envisioned to have a capacity of 1,300MW over the next four to five years, as noted by TA Research.

At this point, the group has found “tenants” for 300MW capacity and this will contribute RM1.4bil in annual earnings before interest, tax, depreciation and amortisation (Ebitda).

YTL Power’s aggressive expansion plan comes with hefty funding requirements.

To hit 1,300MW by 2030-2031, YTL Power could require up to RM30bil in capital expenditure for the additional 1,000MW DC capacity, as estimated by TA Research.

YTL Power, the 15th largest listed Malaysian firm by market capitalisation, will need external funding either via equity or debt.

It has been reported that the group is in discussions with RAM Ratings for its maiden sukuk financing for the DC projects.

YTL Power could also fast-track the initial public offering (IPO) of its DC business. In a recent analyst briefing, YTL Power indicated a potential IPO either in Singapore, Malaysia, the United States or the United Kingdom in the “near-term”.

“We reckon a listing of YTL Power’s DC unit could materialise sooner rather than later,” according to TA Research.

While Malaysia has yet to see a DC IPO, Singapore was the first in Asia to list a pure-play DC real estate investment trust (REIT) back in December 2014.

According to its website, Keppel DC-REIT has 25 DCs across 10 countries in Asia Pacific and Europe – including the Basis Bay DC in Cyberjaya, Malaysia.

Keppel DC-REIT is valued at S$5.6bil (about RM17.5bil) by market cap as at press time.

As of mid-2025, colocation DCs contributed 78% of Keppel DC-REIT’s rental income.

Colocation refers to facilities where space, power, and cooling are shared among multiple tenants. Colocation DCs are designed specifically to allow businesses to house their own servers and hardware in a professionally managed, third-party facility.

In YTL Power’s case, colocation plays a major part of its DC business. One of the colocation tenants, as reported by media, is Sea Ltd – the parent of eCommerce platform Shopee.

Within the Kulai hub, which runs on renewable energy, YTL Power also provides AI compute services through the AI DC, powered by Nvidia’s latest liquid-cooled NVL72 Grace Blackwell (GB 200) GPUs.

This DC supports high-density AI workloads, including AI Cloud and Large Language Model training.

TA Research said the overall DC venture is expected to contribute about one-fifth of YTL Power’s Ebitda by the financial year of 2027.

By enterprise value, YTL Power’s DC business is valued at RM13.8bil, based on an estimate by MBSB Research.

This represents about 17% of YTL Power’s overall group enterprise value of RM79.7bil.

The growing size of the DC venture, along with rising demand from businesses seeking DC solutions, puts YTL Power in a strong position to seek an IPO for the unit.

An IPO is all about striking at the right time. Floating the DC business when the hype is high means that YTL Power will be able to extract higher valuation. If it waits too long and the hype eases, the market may not be as excited.

For investors, a listed DC unit offers recurring income and is defensive in nature.

It is somewhat similar to an ordinary REIT where buildings are owned and rented out to clients. The difference is, DC operations are essentially higher in value.

If the IPO by YTL Power DC unit also includes the AI computing, it offers a better value as AI DCs are not as common as colocations.

Rental reversions can remain strong as more countries, including Malaysia, are limiting the building of DCs.

This essentially means it is not as easy to build a DC as other types of property in ordinary REITs.

The fact that YTL Power is involved in the Johor water supply business also gives investors more confidence that the DCs will not have a hard time sourcing for water.

YTL Power has 53% control in Ranhill Utilities Bhd, which in turn owns 80% stake in Ranhill SAJ Sdn Bhd – Johor’s sole water operator – via Ranhill Capital Sdn Bhd.

However, it is not without risks. Geopolitical factors may influence businesses, especially foreign players, to move their DC presence elsewhere.

Technological expertise is also key in making sure YTL Power’s DCs remain relevant as new facilities are built and businesses’ tech requirements keep evolving.

However, given YTL Power’s extensive experience in the utilities segment and in driving innovation, along with the Nvidia collaboration, investors can expect the group to be better equipped in managing such risks. That said, over dependence on foreign tech expertise with little localisation can be a recipe for disaster.

Ultimately, the DC business is not all about building facilities and installing hardware.

A sustainable operation that stays ahead of competition will largely rely on the ability to offer advanced computing services.

It also boils down to efficient management that optimises resources such as power and water, while prioritising data security for clients or tenants.