• Maintain OVERWEIGHT; Top Picks: UEM Sunrise (UEMS), Sunway, IOI Properties (IOIPG). Johor could see a major railway infrastructure boom, especially if the Government proceeds with the Light Rail Transit (LRT) and Kuala Lumpur-Singapore High Speed Rail (HSR) projects. This should lift demand for residential, commercial and industrial properties in Iskandar Malaysiain the coming years, with prices of strategically located land parcels escalating. We believe UEMS remains the best proxy, while Sunway, IOIPG and Eco World are likely beneficiaries given their landbank exposure near the Second Link and Kulai.

• RTS, and potentially LRT and HSR? In our opinion, rail transit systems are necessary to make the Johor-Singapore special economic zone more compelling. As the Johor Bahru–Singapore Rapid Transit System (RTS) is slated for completion by end 2026, we think the proposed LRT would play a significant role in completing the inter-city railway connectivity, and capturing the rising passenger traffic coming from Singapore. The current population in Johor is 4.01m while Singapore is 5.5m. Assuming the LRT and HSR projects are implemented, Southern Johor will become a major city that could be comparable to the Klang Valley in the longer run. It was reported that the proposed three LRT lines, and the respective terminal stations may be located at Ikea Tebrau, Iskandar Puteri area (either Legoland or Forest City) and Senai. In addition, the HSR may have a station at either Iskandar Puteri or Forest City. Regardless of the exact location, we think the Tuas Link area will see more growth opportunities given the concentration of the new transport system, whereas the Johor central region is already relatively more saturated. We reiterate that UEMS and Sunway are the major landowners in that area, while Eco World has recently replenished 240 acres there.

• HSR – the next major re-rating catalyst. The HSR project is expected to further boost sentiment on the property sector as a whole because it should spur demand for properties in Iskandar Malaysia and KL city centre, as well as areas surrounding the HSR stations along the alignment. HSR will be a major catalyst to increase southbound human traffic, not only from the population between Malaysia and Singapore, but also international travellers due to the potential connectivity between KLIA and Changi airport. Note that Johor will see the longest HSR alignment as more than half of the track will go through the state. UEMS is the prime beneficiary as the last HSR station in Malaysia may be located at Iskandar Puteri (which was the location under the previous proposal).

• Valuation. Positive news flow on major economic and infrastructure developments should continue to buoy market sentiment. As major infrastructure projects are on the cards, the sector re-rating still has legs. The sector is currently trading at a 55% discount to RNAV, in line with longterm historical mean. Upcycle historical +1SD valuation is at a 42% discount to RNAV.

Source: RHB Securities Research - 26 Jan 2024