• Johor: Malaysia’s next growth engine. As Malaysia’s third largest contributor to GDP, Johor stands out with its strategic location, advanced infrastructure, and a diverse economic landscape that includes robust manufacturing activities and a strong services sector. We believe the Government-led catalytic developments as well as influx of foreign and domestic direct investments will help to lift the construction, data centre, energy, petrochemicals, industrial, tourism sectors, in addition to a positive spill over to the property market.

• Robust growth potential. We see robust growth driven by two high-impact projects: the Johor-Singapore Special Economic Zone (JS-SEZ) and the Special Financial Zone (SFZ) in Forest City. The Johor Bahru-Singapore Rapid Transit System (RTS) Link project is a catalytic project that will boost connectivity between the two countries and is 77.6% completed as of May 2024 and remains on track to begin operations by early 2027. The potential resurrection of the KL-Singapore High Speed Rail (HSR) will further expand the greater Johor hinterland in the decades ahead. The recent deluge of new data centre (DC) investments has seen Johor capture nearly 2GW of new capacity helped by restrictions on new DC builds in Singapore.

• RTS to ramp up cross-border traffic. Work progress on the RTS Link project has significantly boosted buyers’ confidence, given the visibility of growth prospects. The RTS Link is a game changer, as increased cross-border traffic and the powerful “SGD factor” should benefit the local real estate sector, including housing, retail, and hospitality. Demand for rental and housing in the central region of Johor is likely to grow more significantly in the coming years, while the influx of new investments will translate into higher affordability in the long run. Major developers remain confident on the longterm outlook with Johor continuing to be an important market.

• Johor is bustling with construction activity. The state’s value of construction work done on a quarterly basis reached MYR4.8bn in 1Q24 – the highest in 19 quarters, and the second largest among all the states. Concurrently, Johor saw MYR20.5bn worth of construction projects awarded as of early Aug 2024, just behind Selangor which recorded MYR25.5bn worth of projects awarded during the same period. With favourable labour conditions and more manageable building material price trends, contractors are in a sweet spot to leverage on Johor’s infrastructure revolution.

• Johor thematic stock ideas: We like UEM Sunrise (UEMS) and Sunway in the Johor property space. For construction, we highlight Sunway Construction (SCGB), Kerjaya Prospek (KPG), and Malaysian Resources Corp (MRCB). Other beneficiaries of the Johor growth story include Tenaga Nasional, YTL Power, AME REIT and VS Industry.

Source: RHB Securities Research - 13 Aug 2024