• Maintain BUY, new TP of MYR1.18 from MYR0.92, 42% upside. UEMSunrise is the best proxy for a thematic play on Johor. The momentum on the influx of foreign direct investments, tourist spending, and property sales remains strong. Meanwhile, the Government’s commitment to ease Malaysia My Second Home (MM2H) requirements is expected to spur foreigners’ buying interest on properties in Iskandar Malaysia. Also, investors should watch out for the news flow on the upcoming meeting between the leaders of Malaysia and Singapore in end-October.

• Review of MM2H requirements could be another boost. Iskandar Malaysia, a major market for foreign property purchasers, is poised to benefit as the Government announced that existing MM2H requirements will be relaxed, in its Budget 2024 announcement last week. Furthermore, visibility of the upcoming infrastructure developments, ie the Rapid TransitSystem, could further boost foreign interest on the Iskandar Malaysia property market, especially in the city centre.

• Further catalytic developments may be concentrated on the Tuas Link areas. During our recent meeting with Johor State Executive Councilmember on investment, trade and consumer affairs Lee Ting Han, we learned that the Johor-Singapore special economic zone may involve a few specific sectors. Together with the special financial zone in Forest City, the Malaysia-Singapore Second Link areas will be the key focus of future developments, as major infrastructure and amenities such as Port of Tanjung Pelepas – the 15th busiest port in the world – the Second Linkexpressway, schools and hospitals are readily available. The massive land resources would allow flexibility in long-term development planning.

• Influx of investments and strong SGD-driven spending to spur demand. The cost factor is said to be the major driver of industrial investments from Singapore. Johor is now seeing increasing interest from MNCs, and some players are also exploring opportunities in developing renewable energy – given the rising requirements from foreign players to be ESG-compliant. Considering the locations of major industrial parks in Johor, we think UEM Sunrise would stand to benefit – given its vast landbank in Gerbang Nusajaya, and as new investments and strong SGDdriven spending should translate to higher demand for housing and commercial properties over time.

• Our TP is now based on a 45% discount to RNAV (from 55%). In line with our expectation of a new property upcycle, and given the additional catalysts for developers that have exposure to the Iskandar Malaysia property market, we expect the sector to undergo a further rerating, bringing valuations closer to levels in between +1SD and the mean – equivalent to that recorded in 2015-2018. We note that sector aggregate property sales are now higher than the levels seen in those years.

Source: RHB Securities Research - 16 Oct 2023