• MoU inked. The MoU between Malaysia and Singapore to formalise the co-operation on the Johor-Singapore Special Economic Zone (JS-SEZ) was signed yesterday, witnessed by respective Prime Ministers Datuk Seri Anwar Ibrahim and Lee Hsien Loong. A full-fledged agreement remains to be worked out with an update expected at the 11th Malaysia-Singapore Leader’s Retreat likely in Oct 2024. The discussions will centre on enhancing cross-border flows and strengthening the business ecosystem within the JS-SEZ to support investments. We believe the JS-SEZ is an important component in the initiative to expedite economic reform.

• No brainer. We see the JS-SEZ as a win-win, with both sides in a position to offer what the other lacks. Singapore has a vast bank of investment capital and access to technology, while Malaysia has ample supply of space, human capital, with Johor also served by a well-developed infrastructure network. In time, we hope the Johor-Singapore nexus will evolve symbiotically, akin to Shenzhen-Hong Kong. Details are currently in short supply with the scope and area of the JS-SEZ still to be determined. A near-term priority will be to establish a one-stop business/investment service centre in Johor to facilitate the set-up of Singapore businesses, adoption and implementation of a passport-free QR code clearance system on both sides and digitised processes for cargo clearance at land checkpoints. Malaysia-Singapore renewable energy cooperation will also be looked into.

• Property. We are upbeat on the initiatives outlined in the MoU on the JSSEZ. Although the specific location was not mentioned, the MoU highlights how both governments will cooperate and jointly develop the SEZ in future, including efforts on expediting approvals and clearance of people and cargo at land checkpoints. UEM Sunrise (UEMS), Sunway, IOI Properties (IOIPG), and AME Elite Consortium are expected to benefit from the future enhancement to growth in Johor.

• Construction. Initiatives to facilitate the set-up of Singapore businesses via a one-stop business centre under the JS-SEZ may spur demand for office buildings and industrial facilities, especially if the SEZ is situated in Kulai. We expect contractors such as Sunway Construction and Kimlun Corp (KICB MK, NR) to be potential beneficiaries under the JS-SEZ.

• Strategy. Economic reform initiatives will be an important component to attract and develop new sources of foreign direct investments. Investment themes centre on opportunities to accumulate on weakness, a focus on laggards, China recovery plays, beneficiaries of a stronger MYR and opportunities in the small-mid cap space. Investor outperformance will invariably depend on astute stock picking. We have OVERWEIGHT calls on the property, construction, healthcare, transport, oil & gas, utilities, basic materials, rubber products, and non-bank financial institutions sectors.

Source: RHB Securities Research - 12 Jan 2024