Big Task for Ranhill in YTL's Johor play

The Star, August 17, 2024

By GANESHWARAN KANA

THE Yeoh family of YTL Group has been making some interesting changes in Ranhill Utilities Bhd after becoming its controlling shareholder in late July.

Last week, all four executive directors of Ranhill were removed from the board and five new members were appointed including two grandchildren of YTL Group's late founder Tan Sri Yeoh Tiong Lay.

One of them is Yeoh Keong Yeen, who is leading the construction of the YTL Green Data Centre Park in Kulai, Johor.

Another key change in Ranhill was the renaming of the company's business segments, as noticed in the second-quarter results announcement earlier this week.

The environment segment was renamed to water, while the energy segment is now known as power.

Ranhill's investment holding and consultancy businesses were renamed to "others", as compared to engineering services previously.

While the changes may seem normal, it tells a bigger story of YTL Group's data centre play and its new-found control over Johor's water supply.

To put it into context, Ranhill owns a 80% stake in Ranhill SAJ Sdn Bhd, which is a monopoly in running Johor's entire water supply network.

Ranhill SAJ is involved in raw water abstraction, treatment, distribution and sales of water across Johor.

It has 46 water treatment plants state-wide, with a total treatment capacity of 2.17 billion litres daily.

YTL Group is not alien to the water business as YTL Power International Bhd owns Wessex Water, a water and wastewater services operator in the United Kingdom, for more than two decades.

Wessex Water is one of the best performers in the sector. YTL Power said Wessex Water has created a long-term solution that will be able to meet demand for water for the next 25 years without the need to develop new resources.

YTL Power's indirect 70%-owned unit, SIPP Power Sdn Bhd, also owns a 53.19% equity interest in Ranhill currently.

The acquisition of Ranhill shares is not just an example of YTL's love for regulated assets that deliver stable revenue.

It is also a timely move amid YTL's huge data centre ambition in Johor.

An earlier research noted that an average data centre in the United States used 300,000 gallons or one million litres of water a day to keep cool, roughly equivalent to water utilised in 100,000 homes.

The Johor state government is worried about the stress the data centre activities can put on the state's water sources.

The fact that over 1,000 people in Kulai - the same town YTL is building its data centre park – were forced to spend their Hari Raya Aidilfitri celebration this year without water is a clear sign that Johor's water management needs an overhaul.

Hence, the Johor Data Centre Coordinating Committee has been established to pre-empt future water supply disruptions that can be caused by data centres.

On Aug 15, Johor state investment, trade and consumer affairs committee chairman Lee Ting Han said the committee will introduce guidelines on the usage of water and power by the data centres.

Eight data centres have been operating in Johor since 2022, with 10 more in development stages.

More data centre providers are expected to invest until 2028.

YTL Power, on its part, will develop its data centre park in Kulai – located near Singapore within a 26km radius coverage – over a few phases.

The first phase hit a milestone in May this year with the start of the first 8MW capacity for Shopee's parent Sea Ltd.

In total, Sea will be the anchor tenant for the 32MW (out of the 48MW) hyperscale DC for more than 10 years.

The next 8MW out of the 32MW capacity is expected to commence at end-2024, noted RHB Research.

Phase two will accommodate the 100MW artificial intelligence (AI)-powered data centre.

"The first 20MW is at 70% completion and should be ready for server installation by the end of the year.

"The remaining 80MW capacity is also still under construction and will be ready for server installation by the middle of next year," said RHB Research.

The entire 100MW will be taken up by YTL AI Cloud – 60% effectively owned by YTL Power – deploying one of the world's most advanced artificial intelligence (AI)- supercomputers on the Nvidia Grace Blackwell-powered DGX Cloud and adopting Nvidia GB200 chips.

RHB Research noted that YTL Power is in the midst of finalising the offtakers for the AI data centre.

Going forward, water demand in Johor will not spike only because of data centres.

Natural increase in water consumption amid rising population, coupled with the expected boom in business activities following the realisation of the Johor-Singapore Special Economic Zone, would create the need for more treated water.

In the case of data centres, the quality of the cooling water highly matters as it can affect the equipment's lifespan.

For instance, as compared to potable water, reclaimed water can cause more corrosion, scaling, and microbiological growth in the equipment.

The pressing need for a greater supply of treated water in Johor has surely opened up opportunities for Ranhill.

The only question is, can Ranhill meet the huge expectations?

The water operator also has a big task in hand to reduce non-revenue water (NRW) or the treated water that is lost due to leakages and other factors before it reaches consumers.

At present, the NRW is 25%, which means a quarter of treated water in Johor is lost before reaching consumers.

To be fair to Ranhill SAJ, it has reduced the state's NRW from 45% in 1999. By 2025, it aims to reduce further to 20.9%, based on Ranhill's website.

Perhaps, with YTL Power and its experience running one of the UK's best water operators, Ranhill SAJ will be able to better address its water supply issues and ramp up capacity accordingly to meet future demand.

Overall, analysts have been positive about Ranhill's earnings prospects in the upcoming quarters.

The domestic water tariff hike in February 2024 between 5% and 59.4% will provide a boost to its near-term earnings.

As for its power business, TA Research head of research Kaladher Govidan says that Ranhill had proposed an extension to the power purchase agreement for its 190MW Teluk Salut Power Plant.

This is beyond its existing concession term that expires in 2029 to address the growing energy demand in Sabah.

"The large-scale solar four project in Bidor, Perak is expected to improve the group's bottom line from financial year 2024 onwards," he says.

Going forward, all eyes will be on YTL Group and how it plans to capitalise on Ranhill to become a dominant force in the Johor water and data centre space.

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