CARI Captures Issue 657: Equity investors scouring Southeast Asia for winners from AI boom

ASEAN
Equity investors scouring Southeast Asia for winners from AI boom
(28 May 2024) Equity investors are scouring Southeast Asia for likely winners from the AI boom. Power producers are particularly favoured, benefiting from the establishment of more data centres in the region due to lower energy and land costs. Companies in IT services, telecommunications, and semiconductors are also well-positioned to profit. Analysts highlight utility companies and grid suppliers as particularly interesting investment prospects. Southeast Asia’s low production costs and strong position in the global semiconductor value chain contribute to its attractiveness as a data centre hub. Despite AI’s nascent stage, analysts project substantial upside potential, with the region set to become the world’s second-largest non-US data centre provider by 2027. Among the stocks identified as prime candidates to capitalize on the AI boom include YTL Power (Malaysian utility firm), Tenaga Nasional (Malaysian utility firm), Delta Electronics (Thai power module supplier for data centers and electric vehicles), Gulf Energy Development (Thai power producer), and FPT (Vietnamese software and telecommunications firm).

SINGAPORE
Singapore to expand data center capacity by more than one-third
(30 May 2024) Singapore plans to expand its data center capacity by more than one-third, with a focus on sustainable growth for the energy-intensive industry, as stated by Janil Puthucheary, senior minister of state at the Ministry of Communications and Information. The city-state, already a major global hub for data centers, had previously restricted new construction due to environmental concerns, but the new roadmap seeks to strike a balance between industry growth and decarbonization efforts. Singapore aims to allocate at least 300 megawatts of additional capacity in the near term, potentially powered by green energy, representing a 35% increase from the current national capacity of over 1.4 gigawatts. Plans for energy-efficient facilities with advanced cooling solutions and partnerships with low-carbon energy providers will be sought to ensure environmentally friendly construction.

MALAYSIA
Google invests US$2.2 billion in data center and cloud region in Malaysia
(30 May 2024) The Ministry of Investment, Trade and Industry (Miti) announced Google’s commitment to invest US$2 billion (RM9.4 billion) in establishing its first data centre and Google Cloud region in Malaysia. This initiative aims to power Google’s digital services and facilitate the delivery of artificial intelligence (AI) benefits to users nationwide. The project is expected to create 26,500 jobs across various sectors, with an economic impact valued at RM15.04 billion. The Malaysian cloud region will join Google’s global network, offering cloud infrastructure, analytics, and AI services while adhering to high security and regulatory standards.This investment aligns with Malaysia’s digital ambitions outlined in the New Industrial Master Plan 2030 and marks Google’s largest planned investment in the country.

THAILAND
Thailand to apply to BRICS bloc of emerging nations as soon as May
(29 May 2024) Thailand announced its intention to apply for membership in the BRICS bloc of emerging nations, which includes Brazil, Russia, India, China, and South Africa. The government plans to submit the application as early as this month, with hopes of becoming the first Southeast Asian member if approved. Joining BRICS is seen as a strategic move to bolster Thailand’s presence on the global stage and strengthen its leadership role among developing countries. The decision was finalised at a cabinet meeting, with a government spokesperson emphasising the potential benefits of membership. BRICS, often perceived as a counterbalance to the dominance of developed economies, has been expanding its membership under the leadership of China and Russia, with recent additions including the United Arab Emirates, Iran, Ethiopia, and Egypt.

THAILAND
Major Thai gas station operator to focus on cafes amidst EV shift
(29 May 2024) PTG Energy, a major Thai gas station operator, is adapting its business strategy in anticipation of the increasing prevalence of electric vehicles (EVs). The company plans to expand its PunThai Coffee chain fivefold over the next three years, aiming to reach 5,000 stores by 2027. Currently, PunThai Coffee boasts around 1,000 locations, doubling in number annually since its inception in 2012. The chain sources its beans locally from northern Thailand and offers affordable prices, such as a 60 baht (US$1.64) Americano. PTG’s move towards diversification reflects concerns about the sustainability of its oil-based business model amidst the government’s plan to boost EV production to 30% of all automobiles by 2030. Non-oil businesses currently contribute just over 20% of PTG’s gross profit, but the company aims to increase this to 50% by 2027, focusing on food and beverage retail. This strategy aligns with Thailand’s expanding coffee market, which has seen significant growth in recent years.

THE PHILIPPINES
Philippines lags behind flock of ‘Asian geese’ in attracting FDI | The Star
(30 May 2024) Nomura reports that the Philippines lags in attracting foreign direct investments away from China due to barriers in the manufacturing sector and geopolitical tensions with Beijing. While the country and Indonesia show strong economic growth and reform prospects, they are not the preferred destinations for global companies seeking new production bases. Viet Nam and Thailand emerge as winners in this shift, though Thailand faces competitiveness challenges. Despite the Philippines’ significant electronics exports, it hasn’t benefited much from supply chain relocations. Geopolitical tensions with China further deter Chinese investments. Issues in the manufacturing sector include high power rates, poor connectivity, and infrastructure underspending.

VIET NAM
FDI into Viet Nam in first five months of 2024 hits five-year record
(30 May 2024) According to the General Statistics Office, Viet Nam’s foreign direct investment (FDI) disbursement in the first five months of 2024 is estimated at US$8.25 billion, marking a 7.8% increase compared to the previous year, which is a five-year record for this period. The processing-manufacturing sector received the largest share of FDI at US$6.5 billion, constituting 78.9% of the total disbursed FDI. Following was real estate business with US$781 million and production and distribution of utilities with US$336.2 million. The total foreign investment into Viet Nam reached US$11.07 billion by 20 May, showing a 2% year-on-year increase. Among the 53 countries and regions investing in Viet Nam, Singapore led with US$2.92 billion, contributing 36.8% of the total newly licensed projects in the country during the first five months of the year.

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NEW ZEALAND
New budget focuses on new spending and tax relief measures amidst weak enviroment
(30 May 2024) New Zealand’s Treasury outlined a challenging economic landscape in its recent budget, with rising unemployment and a weaker fiscal position prompting reduced new spending and tax relief measures. Finance Minister Nicola Willis stated that while the budget wouldn’t solve all economic challenges, it demonstrated prudent management. The centre-right coalition government, facing a technical recession, announced changes to personal income tax thresholds aimed at benefiting lower and middle-income earners. Tax relief measures are expected to inject NZ$3.7 billion into the economy, offset by savings and new revenue, maintaining inflation neutrality. Significant allocations include NZ$2.68 billion for transportation infrastructure and NZ$2.1 billion for law enforcement, featuring funding for additional police officers and prison expansion. Budget cuts targeted housing, education, conservation, and environment spending, with resources reallocated to frontline services. A budget deficit of NZ$11.07 billion, wider than previously forecast, is expected for 2023/24, with a return to surplus projected for 2027/28. Net debt is forecast to peak at 43.5% of GDP in 2025/26, delayed from previous estimates. Treasury anticipates economic contraction in the first half of the year followed by growth in the latter half.

SOUTH KOREA, THAILAND
Thai energy producer aims to secure US$600 million in private debt to construct wind farm in South Korea
(30 May 2024) B.Grimm Power PCL, a Thai energy producer, aims to secure up to US$600 million in private debt to construct an offshore wind farm in South Korea. The company plans to offer its shares in the wind-farm project company as collateral for the three-year loan, potentially comprising offshore yuan and US dollar tranches. Discussions regarding the financing structure are ongoing. One of the wind farms earmarked for private funding will be developed over three years by a Chinese state-owned construction firm, with an estimated cost of US$1.44 billion. The company has been actively investing in wind-farm projects in South Korea and Viet Nam, with recent acquisitions in both countries.

JAPAN
Government to extend discussions into June and beyond regarding ride-hailing services ban
(31 May 2024) The Japanese government has decided to extend discussions into June and beyond regarding the potential full lifting of the ban on ride-hailing services in the country. Prime Minister Fumio Kishida had aimed to present the direction of his administration’s policy in June 2024, but divisions within his ruling Liberal Democratic Party (LDP) have caused delays. Some LDP members are divided on whether information technology firms should be permitted to enter the ride-hailing business. Opposition from officials within the transport ministry and Komeito, the coalition partner of the LDP, has also contributed to the postponement. In April, limited-time ride-hailing services were introduced in select areas, managed by taxi companies. Kishida discussed the matter with regulatory reform minister Taro Kono, who supports lifting the ban, and transport minister Tetsuo Saito of Komeito, who is more cautious. They agreed to assess the situation following the April trial period, without setting a specific deadline for the examination and discussions on allowing non-taxi companies to enter the sector.

15 participating countries	20 chapters	2.2 billion	US$26.2 trillion	28%
ASEAN member states, Australia, China, Japan, South Korea, New Zealand	trade in goods and services, investment, intellectual property, e-commerce, competition, SMEs, economic and technical cooperation, and government procurement	combined population, 30% world’s population	combined GDP, 30% global GDP	global trade (based on 2019 figures)