• Maintain OVERWEIGHT; Top Picks: UEM Sunrise, IOI Properties and Eastern & Oriental (E&O). Since the Sultan Abdul Halim Muadzam Shah bridge (second bridge) completion in 2014, Penang had not seen a major infrastructure project on the island, until now. Last Friday, the Cabinet approved the Penang light rail transit (LRT) project. Apart from the infrastructure angle, upcoming expansion plans by Penang-based and regional semiconductor players, together with Malaysia My 2nd Home (MM2H) programme’s easing requirements should have a positive demand spillover to the property sector.

• Beneficiaries for Penang LRT project. Segment 1 of the Penang LRT Mutiara Line project, which connects Komtar to Silicon Island, is expected to ease traffic congestion and enhance connectivity. Based on the alignment, a few projects are expected to benefit from the railway network. These include Gamuda’s (GAM MK, BUY, TP: MYR6.30) Silicon Island (2,273 acres to be reclaimed), Mah Sing’s Southbay City in Batu Maung (51 acres) and IJM Corp’s (IJM MK, BUY, TP: MYR2.76) The Light Waterfront project (119 acres). Although there was no mention on the potential line extension to Tanjung Bungah, E&O as a major asset and landowner in Penang Island (710 acres excluding 365 acres in Gertak Sanggul) should also benefit from the wealth effect.

• Industrial park developments to capture rising industrial activities. Local and regional E&E players are turning positive on the semiconductor industry. Benefitted from the US-China trade tensions, many local and foreign players have indicated their intention to expand in Penang. We believe the upcoming industrial developments will be able to capture these opportunities. Apart from the three industrial parks (Bandar Cassia Technology Park, Batu Kawan Industrial Park and Penang Science Park South) that Penang Development Corp (PDC) is currently developing, AME Elite Consortium will be launching its fully-integrated industrial park at Seberang Perai Tengah (175 acres) in mid-2024. In the northern mainland, Penang Technology Park @ Bertam is also a new industrial park development by Ideal Capital (IDEAL MK, NR).

• E&O is a better Penang property play. In our view, developers with exposure to Penang island and mainland should see better demand for properties going forward. However, the percentage of exposure is relatively small as many other major developers have bigger presence in the Klang Valley and Iskandar Malaysia. Tambun Indah and E&O are considered the key Penang plays, although the latter is not a pure play. However, as Tambun Indah is relatively less aggressive in its launches, its outlook for earnings growth is rather mediocre. E&O, on the other hand, has started to enjoy the initial wealth effect, with the recently launched projects seeing an encouraging take up rate, which should translate to better earnings growth ahead.

Source: RHB Securities Research - 1 Apr 2024