• Penang – a thriving hub boasting highly promising investment prospects – is propelled by the ever-expanding E&E sector, and bolstered by infrastructure upgrades, a surging demand for real estate, and increasing disposable income. Renowned for its strategic location, skilled workforce, and business-friendly environment, Penang remains a magnet for investors. Government incentives and the forthcoming Penang Light Rail Transit (LRT) promise enhanced connectivity, further stimulating investments, job creation, and driving growth in the technology, property, and construction sectors.

• An economic powerhouse. Penang continued to attract substantial investments in 2023 (MYR63.4bn), solidifying its status as a premier investment destination. In turn, the state’s GDP/capita witnessed a remarkable rise to MYR69.7k in 2022 from MYR44.8k in 2015, fuelling jobs expansion and increased household incomes. Note: Penang recorded a significant growth in E&E exports, from MYR209m in 2018 to MYR341m in 2022, reflecting a robust 5-year CAGR of 12.1%.

• Technology: A thriving E&E hub. Penang stands poised to benefit from the recovery of the semiconductor sector and repercussions of US-China trade tensions. Its established E&E and manufacturing industries are positioned to capitalise on heightened investment in technology and medical technology supply chains, presenting vast business opportunities for local companies across the spectrum (from design houses and outsourced manufacturing to engineering support and material supply & support services).

• Construction: A beacon of opportunity. The construction sector in Penang will continue to shine, in our view, buoyed by ongoing projects such as Seri Tanjung Pinang 2 (STP2), escalating demand for E&E facilities, and property projects, alongside the impending Penang LRT Mutiara Line. This heightened infrastructure rollout is set to benefit contractors, with an estimated MYR10- 20bn worth of contracts anticipated in the coming years – driven by the Penang Transport Master Plan (PTMP) and development of Silicon Island.

• Property: Following the momentum. Penang’s property sector is fuelled by burgeoning activity in the E&E space, major infrastructure upgrades, and rising income/capita. The proliferation of new industrial parks like Batu Kawan Industrial Park 2 (BKIP2), Penang Technology Park @Bertam, and AME Elite Consortium’s (AME MK, BUY, TP: MYR2.05) Northern Industrial Park are set to fuel job creation and population migration. This, with enhanced connectivity from various infrastructure upgrades, is poised to drive demand for residential properties, particularly in the mid- to high-end segments.

• Key ideas. Within our coverage, Coraza Integrated Technology (Coraza), Eastern & Oriental (E&O), Gamuda, Inari Amertron (INRI), Kerjaya Prospek (KPG), and Malaysian Resources Corp (MRC) are among the potential beneficiaries. Beyond our coverage, NationGate (NATGATE MK, NR), ViTrox Corp (VITRO MK, NR), Pentamaster (PENT MK, NR), MI Technovation (MI MK, NR), TT Vision (TTV MK, NR), Aemulus (AMLS MK, NR), and PIE Industrial (PIE MK, NR) are amongst other potential beneficiaries.

• Key risks include geopolitical instability, competition, unfavourable policy changes, infrastructure strain, supply chain disruptions, technology obsolescence, talent mismatch, and environmental concerns.

Source: RHB Securities Research - 9 May 2024