Data centre to gain in prominence
With space no longer a constraint going forward, we expect the data centre segment to become a long term revenue growth driver for TDC. Nevertheless, capex for re-purposing and new-build is not insignificant, and there is a gestation period (a few years). Maintain HOLD with an unchanged MYR4.60 TP (DCF-based). We prefer TM (T MK, BUY, CP: MYR5.21, TP: MYR7.40) among the Malaysia telcos.
A new downtown data centre?
Following TDC’s recent purchase of Bangunan KWSP (for MYR62m) in downtown Kuala Lumpur, we expect TDC to repurpose the office building into a data centre. The acquired building is located just a block away from Menara AIMS (TDC’s flagship and fully-occupied data centre) and would thus enjoy the same location appeal. It is also logistically convenient, both in terms of operations and infrastructure. Details (such as capacity) are scant for now, but we would expect incremental capex of a few hundred million over the next few years.
Second Cyberjaya facility starting to contribute
Recall TDC had started on the second phase of its second Cyberjaya data centre in late-2021, with management noting previously that enquiries for the completed first phase had outstripped supply. We expect meaningful revenue contribution from the second Cyberjaya facility in 2022. The site is ultimately scalable to 50MW, and there is thus ample scope for further growth.
Risk-reward balanced for now
Our earnings forecasts and our MYR4.60 TP (DCF-based assuming 6.8% WACC and 2% LT growth) are unchanged. TDC’s near term revenue growth will continue to be retail-driven, underpinned by ongoing fibre network expansion. Data centre currently accounts for c.20% of TDC’s revenue, boosted by the acquisition of AVM Cloud. Going forward, we expect data centre’s share of revenue to grow to c.25% by 2025.