AI Frenzy Draws Stock Traders to Southeast Asia’s Likely Winners

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(Bloomberg) — Stock investors in Southeast Asia are looking for alternatives to playing the artificial intelligence theme as tech giants pump billions of dollars into infrastructure spending over the next few years.

Energy producers have become the favorites as more data centers are built in the region, thanks to lower energy and land costs, according to analysts. Companies operating in the ICT services and semiconductor sectors are also well positioned to benefit.

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“Utility companies and companies that supply electricity and grids are more interesting to us,” said Kenneth Tang, portfolio manager at Nikko Asset Management.

Southeast Asia's relatively low production cost and strong position in the global semiconductor value chain increase the region's attractiveness as the next hub for data centers. This is a shift in a region that investors once shunned due to its lack of exposure to technology.

While AI's contribution to earnings remains to be seen given that the technology is still in its early days, the upside potential is huge, analysts said. The region is expected to become the world's second-largest non-US data center provider after China by 2027, according to Morgan Stanley, paving the way for a multi-year growth cycle for companies in the supply chain.

Here is a list of several Southeast Asian stocks that analysts said are better positioned to ride the AI ​​boom.

YTL Power

Shares of Malaysian utility company YTL Power International Bhd have doubled. Since it signed an agreement with Nvidia Corp to build a $4.3 billion artificial intelligence data center in the state of Johor.

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As the only new data center operator in the Southeast Asian country with a 500-megawatt solar supply, the company “should stand out to customers who want clean energy and fast capacity,” Macquarie Group Ltd analysts, including Charles Younts, wrote in note. Last month.

National energy

Tenaga Nasional Bhd., Malaysia's sole network operator, will be the “largest beneficiary of growth in Asean data centers,” Morgan Stanley analysts, including Mayank Maheshwari, wrote in a May 15 note. Strong energy demand will help double the company's profits in 2018. They said three years.

The company expects electricity demand from data centers to exceed 4,300 megawatts by 2035. Tenaga's move toward renewable energy will increase its attractiveness. The stock has jumped 32% so far this year.

Delta Electronics

Delta Electronics Thailand PCL, a leading supplier of power modules for data centers and electric vehicles, “is a major beneficiary of the upcoming AI data center to be built in the ASEAN region due to customer demands for chain-chain flexibility,” said Wern Guan Cheng. Supply and cooling solutions. Technical Analyst at HSBC Holdings Plc.

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The company in March expanded its manufacturing capacity for electronic products and is building new factories to produce components for the automotive, cloud computing, data center and artificial intelligence sectors. While that may help earnings growth, the stock is lagging the Thai stock index, suggesting there is room to catch up.

Gulf Energy

Thailand's Gulf Energy Development PCL is another energy producer expected to benefit from growing electricity demand and expanding data center infrastructure. Morgan Stanley analysts said the company “has a well-established position in the energy and infrastructure space, with a portfolio of green energy projects in domestic and international markets and an extensive business network.”

Gulf is looking to increase its data center capacity, with the first phase scheduled for completion in March next year. It also partners with Singapore Telecommunication Ltd. To attract more super expanders.

FPT

Shares of FPT Corp, Vietnam's largest listed technology company, have risen nearly 40% this year, partly due to optimism about its partnership with Nvidia. The software and communications company is expected to post earnings growth of more than 20% over the next two to three years, according to Ruchir Desai, fund manager at Asia Frontier Capital Ltd.

Efforts to deepen strategic relations between Vietnam and the United States will also help support the Southeast Asian country's rise up the technology industry value chain, which bodes well for FPT.

-With assistance from Ishika Mukherjee.

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