RHB Investment Research Reports

Market Strategy - JS-SEZ- Igniting Growth In The South

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Publish date: Wed, 08 Jan 2025, 11:04 AM
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  • JS-SEZ: Finally signed and sealed. Malaysia and Singapore have formalised an agreement to create the Johor-Singapore Special Economic Zone (JS-SEZ), which will leverage on the strengths of each country to catalyse growth, attract investments, create jobs and promoting sustainability. The JS-SEZ aims to attract 50 new projects and create 20,000 skilled jobs in the first five years, promising a steady stream of positive newsflow coupled with spillover benefits to the property and construction sectors, and also to players in focus industries like aerospace, healthcare, pharmaceuticals, electronics, manufacturing, tourism, energy, logistics, education and financial services.
  • A compelling proposition. We believe the JS-SEZ is a compelling proposition on its own - with Johor offering a lower operating cost environment , access to land, ample supply of skilled labour and adequate infrastructure to connectivity coupled with Singapore's access to capital and technology. The corporate and personal income tax incentives, the committment by the establishment for a 1-stop centre to facilitate processes, and establishment of an infrastructure fund is icing on the cake for potential investors.
  • Construction sector. We view that the infrastructure fund - to be established by the Malaysia Government - could spell opportunities in terms of road infrastructure jobs as JS-SEZ covers nine flagship zones. The prospect of more foreign direct investments (FDI) into the JS-SEZ would create demand for industrial buildings (warehouses, factories) and offices, which will benefit contractors such as Sunway Construction (SCGB) and IJM Corp. We also do not discount the possibility of a new public transport system (such as Light Rail Transit or Autonomous Rapid Transit to be integrated with the RTS Link) to ensure seamless mobility under JS-SEZ.
  • Property sector. The signing of the definitive agreement on the JS-SEZ will uplift market confidence. The bilateral commitments represent an unprecedented level of progress and collaboration, and real estate in Iskandar Malaysia is expected to undergo a multi-year growth phase. The influx of FDIs, the opening of new offices by local and foreign financial institutions in Forest City, as well as the higher number of travellers from Singapore should have a strong positive spillover effect on the real estate sector. We expect more companies, workers and skilled labour to take advantage of the tax incentives and reside in Johor in the coming years. Major landowners in Iskandar Malaysia are set to benefit from the influx of FDI.
  • Strategy. We believe the JS-SEZ has the potential to propel Johor to become the southern growth engine for the economy. News flow on FDIs from across the region will fuel Johor-centric plays. We remain positive on the broader market - with external volatility offset by domestic stability and bolstered by ample liquidity, steady corporate earnings and attractive valuations. Top JS-SEZ stock ideas include UEM Sunrise, Sunway, SCGB, IJM and Dialog.
  • Key risks include unpredictable geopolitical developments and a fallout from an escalation of the US-China trade war that could impact Malaysia.

Source: RHB Research - 8 Jan 2025

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