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Maintain OVERWEIGHT; Top Picks: UEM Sunrise (UEMS), IOI Properties (IOIPG), and Eastern & Oriental (E&O). We expect the property sector to continue to be driven by: i) Positive news flow on potential infrastructure projects; ii) active land transactions, and iii) influx of investments, especially in the data centre, green energy and manufacturing sectors. Developers with sizeable landbank and industrial segment exposure should see greater benefit from infrastructure developments and rising investment flows. Pump priming across the Klang Valley, Iskandar Malaysia and Penang region should lift the sector’s overall valuation.
“Swiftonomics” effect in Johor. Apart from the positive economic impact in Singapore, Johor Bahru (JB) also experienced some spillover from Taylor Swift’s concert last month, benefitting the hospitality, retail and F&B sectors. We understand that hotel occupancies were full, F&B outlets enjoyed good business, while transporters were busy fetching concert goers across the causeway during that week. The effect strongly shows the increasing significance of Johor given its proximity to Singapore. Hotels in JB are already enjoying high occupancy rates of 80-90% during normal weekends. Retailers in F&B and golfing services are putting up new stores or expanding their services. Occupancy of certain shopping malls in JB is almost full. We believe many retail brands will now consider JB as an important market for their store expansion in the near term. All these wealth effects are expected to translate to stronger demand for property in Iskandar Malaysia.
Higher chance of HSR revival? Recently, it was reported that three consortia may have been shortlisted for the Kuala Lumpur-Singapore High Speed Rail (HSR) project. While funding plans and construction costs would typically receive closer scrutiny, the latest news seems to be positive on the progress. All eyes are now on the HSR, Johor Bahru Light Rail Transit (LRT) and JohorSingapore Special Economic Zone. Major landowners are likely beneficiaries.
Expect more land transactions by developers, users, and “landbank collectors”. While many developers are still busy looking for new land, there is also a rising pool of end-users intensifying the competition, driven by an influx of FDIs ie manufacturers and data centre players, as well as expansion plans by some E&E companies. Lately, “land collectors” such as Scientex (SCI MK, NEUTRAL, TP: MYR3.85) and Lagenda Properties (DBE MK, NR) have also been buying large tracts of land for long-term development. Land prices are expected to escalate further given such momentum.
Penang joining the pump-priming bandwagon. The Federal Government has recently approved the long-awaited Penang LRT project. Apart from the infrastructure angle, driven by the US-China trade tensions, many local and regional E&E players are also taking the opportunity to expand their operations in Penang. This should also help lift demand for properties in the state in the coming years.
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