• Perak's manufacturing sector contributes nearly one-fifth of its GD

• New industrial parks are welcoming manufacturing investments

• Perak's REE development - a strategic move in the global EV supply chain

• Perak is first state to harvest homegrown onions

Perak records a higher GDP growth, becoming a leading domestic destination in 2023. Perak's economic performance improved in 2023, recording a GDP growth of 2.7%, amounting to RM82.6bn. In 2022, Perak's GDP reached RM80.4bn. The growth was boosted by the services sector, which expanded by 3.0%, with notable contributions from tourism-related subsectors like wholesale and retail trade, food and beverages, and accommodation.

Perak: The crown jewel of domestic travel. Perak ranked fourth for domestic visitors in 2023, attracting 17.1mn—over a 17% increase from 14.6mn in 2022. This growth is driven by popular attractions like Pulau Pangkor and Lost World of Tambun, as well as unique accommodations like Gopeng Glamping Park and Kuak Hill. Overnight visitors reached 7.5mn, up from 6.9mn in 2022. The state's tourism revenue is projected to hit RM10bn during Visit Perak Year 2024, significantly boosting Perak’s economic development.

Three New Initiatives to Enhance Perak Sejahtera 2030. The three new agendas— Social Development, Environmental Sustainability and Biodiversity, and the Empowerment of Local Authorities—have been added to strengthen the Pelan Perak Sejahtera 2030. With these additions, the plan is on track to achieve all nine established agendas. Over the past two years, various social welfare initiatives and programs have demonstrated progress.

Services and manufacturing sectors the main drivers. The Perak state economy relies heavily on the services sector, which contributes over 60% to its GDP. Key components of the services sector in Perak include utilities, transportation, and ICT, which accounted for 19.6% of the state's GDP in 2023. This is followed by domestic trade (wholesale, retail, food and beverage, and accommodation) at 18.8%, and government services at 12.4%. Perak's tourism strengthens the service sector by boosting GDP and creating jobs through its diverse attractions, with Tourism Perak confident of reaching 8mn visitors for Visit Perak Year 2024. The state welcomed 3.6mn visitors from January to June 2024, a 72% YoY increase. With upcoming programs, Perak is optimistic about achieving its goal, driven by domestic and international tourists, especially from Thailand, Singapore, China, Australia, and Indonesia.

Perak's manufacturing sector contributes nearly one-fifth of its GDP, with key industries such as electrical and electronics (E&E), automotive, and food processing driving economic growth. The state's strategic location, affordable land and labour, and well-established industrial parks attract both local and foreign investments. Supported by government incentives and initiatives promoting Industry 4.0 technologies, Perak’s manufacturing sector remains competitive and integral to the state's economic development.

Perak's economic growth: Outpacing national trends with ambitious targets for 2025. Based on the annual growth rate, Perak's economy expanded slightly faster at 4.7% per annum, compared to Malaysia's growth of 4.4% from 2015 to 2019. Post-pandemic, Perak's GDP grew by 3.6% per annum, while Malaysia's economy increased by 3.2% from 2021 to 2023. Under the MTR-12MP, Malaysia's projected annual growth for 2021-2025 is 6.2% per annum. As guided by Perak Sejahtera 2030 and current as well as investment flows, we anticipate Perak’s economy to expand above 5.0% for 2024 and 2025.

Perak is the 5th top contributor to Malaysia's agricultural output, highlighting its significant role in the sector. The state's diverse activities, including oil palm, rubber plantations, and the cultivation of rice, fruits, and vegetables, greatly enhance both state and national agricultural GDP, supporting food security and economic stability. Additionally, the introduction of the first homegrown onion, Bawang Perak, marks a milestone in local agriculture, showcasing the region's ability to produce high-quality onions while reducing import reliance and providing sustainable income for local farmers.

Foreign investment steadily above RM2bn in post-pandemic era. After the pandemic-led crisis in 2020, Perak recorded a strong rebound of approved foreign investment for manufacturing projects at RM4.1bn in 2021 and registered above RM2bn worth of investments in the following years. On the other hand, the value of domestic investment has been on declining trend since 2019. Roughly about 40.0% of foreign investments will flow into E&E sector while processed food, plastic products and transport equipment are also the beneficiaries. As for domestic investment, rubber products and transport equipment are the key sectors. We view the transport equipment among others very likely related with Lumut Port expansion plan.

Most of Perak’s products travel thru Penang and Port Klang. Most of goods produced in Perak are shipped out thru exit points of Penang and Selangor. Lumut Port is mainly for industrial and repair works, hence explained why imports activity is higher than exports in the port. The others exit & entry points are related to the country borders especially in the Hulu Perak. If the Sultan Azlan Shah Airport (LTSAS) upgraded as cargo terminals, then we shall see a new catalyst of external trade for Perak state economy.

Perak among attraction points for data centres due to water access. Electricity & internet are adequately supplied in Malaysia, including Sabah and Sarawak. The difference between state and region could be in terms of water access. Adequate water access is crucial for cooling and humidification systems to maintain optimum atmosphere for the server devices to operate properly and steadily. Judging on the non-revenue water ratio, Perak has high chance in attracting more data centres. Also, we view Johor and Klang Valley to gain attention of data centre players due to their low NRW ratio.

New industrial parks are welcoming manufacturing investments. Under Perak Sejahtera Master Plan 2030, there are five key industrial parks namely (i) SVTP, (ii) AHTV, (iii) KIGIP, (iv) Perak HIP and (v) LUMIC. Each industrial park has different focus. For instance, AHTV focuses on automotive and motor vehicles industries while LUMIC emphasize on maritime & logistics industries. Perak HIP is focusing on halal food and processed food manufacturing. SVTP among others to process silicon manufacturing whereas KIGIP to touch on green manufacturing and renewable energy projects. The strategic location of Perak between Penang and Klang Valley is a valuable factor for manufacturing sector investors. In the longrun, expansion of Lumut Port via LUMIC would be able to facilitate more external trade activities and strengthen the manufacturing supply chain in the state.

Perak Sejahtera 2030 – 9 Agenda to Prosperous Economy, Political & Social. During the period 2021-2030, Perak is driven by the master plan named Perak Sejahtera 2030. Among the nine agenda are (i) Food Security, (ii) Digital Economy, (iii) TVET Corridor, (iv) Responsible Mining, (v) Data-Driven Decision-Making, (vi) Governance of Perak Stake Projects, (vii) Social Development, (viii) Nature Sustainability and Biodiversity and (ix) Empowerment of Local Authorities. These agenda are expanded into 18 flagships to spearhead projects and state initiatives. Also, the state government reassure that the Perak Sejahtera 2030 is align with federal government’s plans including the Midterm Review of 12th Malaysia Plan (MTR-12MP) and Economic Madani Narratives.

Perak Is First State to Harvest Homegrown Onions. The first flagship of Perak Sejahtera 2030 is food security. Onion farming is one of the initiatives taken by the state government. According to Department of Agriculture Malaysia, onion supplies are mainly relied on external sources like India, Holland, and China. Following export ban by India and volatility of onion prices, Malaysian government decided to pursue onion farming to cater domestic consumption. Perak is one of the six states that will be the main production hub for local BW1 onion in Malaysia for domestic consumption. The other five are Selangor, Perlis, Penang, Pahang, and Kelantan. Ministry of Agriculture and Food Security aims to achieve a self-sufficiency rate (SSL) of local onions of 30% by 2030.

Rare Earth Elements (REE)– Unlocking Perak’s Hidden Gems. In tandem with Malaysia’s aspiration to develop minerals industry from RM9.9bn in 2019 to RM29.0bn in 2030. According to NIMP 2030, the potential of REE in the country is 18.2mn tonnes of nonradioactive RE reserves by year 2030 and valued at RM747.2bn. The REE in Perak has potential to be turned into super-magnet which is useful for electric vehicle, wind turbine and battery. The extraction method in Perak is in-situ leaching which is environmentally safe and responsible mining. Also, the state government unveiled its mineral analysis lab — the Terra Mineral Lab (TML) and the Centre of Excellence (COE) for Mineral Research on 3rd October 2024. This is the first commercial laboratory of its kind in Malaysia, will strengthen Perak’s role in the mineral industry.

Industrial Metals: Perak's REE Development - A Strategic Move in the Global EV Supply Chain

Rare Earth Elements (REEs) are a group of 17 chemically similar elements that include the lanthanides, scandium, and yttrium. Its play a critical role in various advanced technologies due to their unique magnetic, catalytic, and optical properties. REEs are essential in electronics such as smartphones and computers, where neodymium is used in high-performance magnets. It is also crucial in renewable energy technologies particularly in wind turbine magnets and electric vehicle motors. Other applications include defence systems where it contributes to advanced aerospace and missile technologies and medical imaging where gadolinium is used in MRI contrast agents. Additionally, REEs are used in catalysts for refining petroleum and in automotive catalytic converters. Despite their relative abundance, REEs are difficult to extract and process due to their dispersed nature, making them strategically important in global supply chains.

Among the sectors of electronics, renewable energy, and electric vehicles (EVs), the largest user of REEs is the clean energy sector particularly EVs and wind turbines. EVs consume significant amounts of REEs, especially for magnets in electric motors, which often rely on neodymium (Nd), praseodymium (Pr), and dysprosium (Dy). As the demand for EVs grows, this segment has increasingly dominated the use of these materials. For example, in 2023, the EV sector saw a sharp rise in demand for critical minerals including REEs, driven by the growth of clean energy applications. Wind turbines also contribute substantially to the demand for REE particularly neodymium, where used in the permanent magnets that are essential for the efficient functioning of turbine generators. Both EVs and renewable energy infrastructure are forecast to continue driving this demand as part of the global energy transition. In contrast, the electronics sector still uses significant amounts of REEs but its overall share is now smaller relative to the rapidly expanding clean energy and EV markets.

The largest exporter of REEs is China, which dominates the global market. In 2023, China produced about 240,000 metric tons of REEs, accounting for over 60% of global production. China's rare earth exports are mainly concentrated in light REEs, like neodymium and praseodymium, which are crucial for high-strength magnets used in electric vehicles (EVs) and wind turbines. Note that other notable exporters include Malaysia and the U.S. although the production volumes are significantly lower than China's. On the import side, China also plays a key role especially as a re-importer of rare earth concentrates for processing. The European Union (EU) is one of the largest importers of REEs, with China supplying about 40% of the EU’s imports, followed by Malaysia (31%) and Russia (25%). The U.S. is another major importer of processed REE materials, primarily for use in defence, technology, and clean energy sectors.

Following our meeting with Spin Eight Nano Technologies Sdn Bhd, we are optimistic about the progress in Perak state which has been selected as the pilot project site for REEs development. The REE project in Perak is being managed by MBI Perak Incorporated, the state's government-linked company (GLC) which has appointed Spin Eight Nano Technologies Sdn Bhd due to its specialized expertise in REEs research and development. The appointment of Spin Eight, led by their Chief Executive Officer (CEO), Dr. Noorhana Yahya underscores the company's strong capabilities in REEs extraction methodologies. Dr. Noorhana, a former lecturer at Universiti Teknologi Petronas (UTP), holds a PhD with a focus on REEs and has earned multiple certifications and intellectual property rights related to extraction techniques. Perak was selected as the project site not only for its vast REEs but also for the availability of local expertise, particularly through Dr. Noorhana’s leadership. This strategic choice positions Perak as a key player in Malaysia’s growing involvement in the global REEs market. We believe the position of Perak state to potentially benefit from the increasing global demand for REEs driven largely by the rapid growth of the EVs industry. Although Perak's initial production volume may be relatively small compared to major producers, its strategic entry into the REE market could have a meaningful impact. The state could leverage this opportunity to tap into the global supply chain for high-demand materials which believe positioning itself for future growth in the sector.

Consumer: Onion Cultivation Development Project

Malaysia consumed 687k MT of onions in 2022, amounting to RM1.58bn. This translates to approximately 1.2 kg of onions consumed per person annually. The country imported 321,776 MT of onions from India, 77,772 MT from the Netherlands, and 47,165 MT from China, with India contributing a substantial 64% of total imports. Following the Indian government's decision to impose an onion export ban in December 2023 (lasting until March 2024), concerns over Malaysia’s food security have risen, given the nation's reliance on Indian onions for more than half of its consumption. However, the ban included a provision to allow exports according to the country’s food security needs.

Recently, we visited Malaysia's first onion farm, initiated by Perak's Department of Agriculture (DOA), alongside Malaysian Agricultural Research and Development Institute (MARDI) and the Federal Agricultural Marketing Authority (FAMA). During the first phase of the project, 0.6 hectares were used to harvest 2.3 MT of onions. In the second phase, 3.3 MT were harvested in April 2024. As of October 2024, a total of 9 hectares have been cultivated for onion production across Perak state. On average, onions are manually cultivated twice a year, with each cultivation cycle lasting about 3 months. We were guided that MARDI provides seeds (approximately 2 kg/ha) and bulbs (1.5 MT/ha), and all harvested onions are marketed and under the responsibility of FAMA. The Department of Agriculture and MARDI also manage the risks associated with diseases and pests, such as fungal infections. The selling price at the farm gate is RM7/kg to FAMA, which then sells the onions to consumers at RM10-12/kg.

DOA’s mechanism aid to the farmers are comprehensive using the in-kind method amounting RM50k/ha rather than cash aid from the start such as the cleaning, machinery acquisition, and farm equipment along with its storage space. Then, the development and improvement of farm infrastructure, post-harvest facilities, and marketing activities are supported by the government bodies. DOA guided that they will continue to facilitate the existing farmers until they are confident and self-sufficient in cultivating onions. In 2025, DOA anticipates another 44ha will be initiated.

Some challenges faced by domestic onion producers include high labour and input costs, which are substantially higher than in other countries. For instance, in Malaysia it costs RM60 for labour as opposed to RM10 in Indonesia. Additionally, Malaysia relies on imported basic goods for onion cultivation, whereas other countries produce their own inputs.

The government aims to achieve 100% self-sufficiency level (SSL) in production, targeting 4,428 ha by 2030 to meet the domestic demand of 44.28k MT. Reducing reliance on food imports, which are vulnerable to external risks such as India's recent export ban or unexpected disease outbreaks that could lead to shortages, will benefit consumers. As of October 2024, 16 farmers have registered for the Onion Cultivation Development Project, with Perak having the highest number of farmers, in total 6 farmers covering 8 ha. Beyond benefiting farmers, this initiative is expected to have a positive economic impact, creating new job opportunities in cultivation and related sectors such as logistics and fertilizer supply as economies of scale expand.

Source: BIMB Securities Research - 16 Oct 2024