• BIMB Securities Sdn Bhd (BIMB Securities) recently organised the 'Bicara Bersama YB Tuan Ng Sze Han' event at DoubleTree by Hilton, The Intermark, Kuala Lumpur, focusing on the Selangor state government's future plans under Selangor Plan 1 (RS-1) 2021-2025 and potential key areas of focus for RS-2.

• RS-1 is a development plan for the state of Selangor, designed to chart its path toward becoming a smart, liveable, and prosperous state over the 5-year period from 2021, structured around 4 strategic themes namely: (1) Economy, (2) Social, (3) Sustainability, and (4) Governance; encompassing a total of 261 initiatives.

• With the completion of RS-1, the implementation of RS-2 will bring forward several key ongoing projects, including the launch of the Selangor Aerospace project and the expansion of the semiconductor industry, both of which offer significant investment opportunities in Selangor.

• The better-than-expected economic performance of Selangor has exceeded the Midterm Review of the 12th Malaysia Plan (MTR-12MP) target, which was set at 25.1% of the national GDP by 2025, reaching a new high of 25.9% in 2023.

• Overall, key potential areas of focus for sectors in Selangor include: (1) manufacturing, construction, and services sectors, (2) logistics and supply chain, (3) seaport and maritime, (4) aerospace and aviation, (5) renewable energy and sustainability, (6) property development and infrastructure, (7) technology and digital economy, (8) healthcare and biotechnology, and (9) tourism and hospitality.

• In conclusion, Selangor’s rapid economic expansion story aligns with our 2H24 Strategy Theme, centered on a new cycle of re-industrialization of the local economy, benefitting from global geopolitical tensions and the energy transition. Hence, we maintain our FBMKLCI Index 2024 year-end target of 1,720 points.

Selangor’s Economic Performance and Sector Leadership. Selangor’s economic growth has been robust, expanding at an annual rate of 6.4% from 2015-2019, surpassing Malaysia’s of 4.4%. Post-pandemic, Selangor grew by 7.5% from 2021- 2023, compared to Malaysia’s 3.2%. Under the MTR-12MP, the projected annual growth rate for 2021-2025 is 6.2%, with Selangor targeting 6.5-7.0% per annum through RS-1. Selangor leads in national manufacturing, construction, and services sectors, producing key products such as automotive components, gloves, semiconductors, and processed foods. Major infrastructure projects like LRT3, ECRL, and MRT are underway, alongside growing residential, especially affordable home and non-residential construction driven by demographic and income trends.

The services and manufacturing sectors are the primary drivers of Selangor’s economy, with the services sector contributing over 60% of the state’s GDP – that include industries such as utilities, transport and storage, ICT, distributive trade, finance and insurance, and real estate. Additionally, the manufacturing sector accounts for nearly one-third of the state’s economy, with diversification across various industries. Expansion in electric vehicle (EV) manufacturing and aerospace activities is set to provide the positive spill-over effect towards the supply chain of both industries, while the establishment of an IC Design Park in Puchong is anticipated to strengthen the semiconductor industry. The potential development of a second IC Design Park in Cyberjaya could further enhance manufacturing growth.

Healthy Consumer Demand to Support the Economy. The strong consumer demand in Selangor, driven by a healthy job market and rising incomes, positively impacts the consumer sector by enhancing purchasing power and boosting consumer spending. The lower unemployment rate in Selangor, coupled with a higher labor force participation rate of 77.4% in 2023, contributes to economic stability. Increased median salaries, which have risen by 8.1% since 2019 compared to a national decrease of 0.7%, along with a real wage growth of 6.6% surpassing the national rate of 4.4%; further bolster consumer confidence and spending, even amid a 4.2% inflation rate in 2023. In addition to these robust economic environment, the Visit Selangor 2025 initiative is expected to boost tourist arrivals, creating favorable conditions for growth in the retail and consumer sectors, which will positively impact consumer stocks under our coverage such as MRDIY (BUY, TP: RM2.49), AEON (BUY, TP: RM1.75), Padini (HOLD, TP: RM3.60), Farm Fresh (BUY, TP: RM2.02), Spritzer (BUY, TP: RM2.90) and QL Resources (HOLD, TP: RM6.70).

Strategic Importance of Selangor in Malaysia’s Trade and Data Centre Sectors. Port Klang manages about 30% of Malaysia’s external trade flows, with nearly one-third of the country’s trade passing through Selangor by air and sea. Selangor is expected to remain central to the country’s external trade activities, particularly with the planned development of a mega port on Carey Island, which Port Klang Authority (PKA) predicts will handle 36mn shipping containers, compared to Port Klang’s 13.2mn TEUs recorded in 2023. We believe that the development of a new port at Pulau Carey will benefit the longterm growth of logistics players like Swift (HOLD, TP: RM0.53), despite presenting healthy competition to Westports (HOLD, TP: RM4.60), due to the anticipated increase in container haulage and land transportation volumes.

Additionally, Selangor is a key location for data centers due to its water access, essential for cooling and humidification systems. While Malaysia's electricity and internet are wellsupplied, water availability is crucial. Selangor and KL, with their high non-revenue water (NRW) ratios, are expected to attract more data centers, while Johor and Perak may also draw interest due to their low NRW ratios. The planned addition of 18-20 data centers in the region offers opportunities for leading players like SunCon (HOLD, RM3.90) and Gamuda (BUY, RM9.50). Notably, Gamuda has used its next-generation Industrial Building System (IBS) to expedite data center construction, completing the AIMS Cyberjaya Block 2 project that 8 months ahead of schedule and is currently developing a data center in Elmina Business Park.

Key Investment Sectors and Opportunities in Selangor Moving Forwards. With the completion of RS-1, the implementation of RS-2 will bring forward several key ongoing projects, including the launch of the Selangor Aerospace project and the expansion of the semiconductor industry, both of which offer significant investment opportunities in Selangor. The Integrated Regional Development in Selangor (IDRISS) will prioritize areas such as Pulau Carey for the advancement of the manufacturing, logistics, and seaport sectors. This initiative is projected to contribute RM40.2bn to Selangor’s GDP by 2060, with RM4.71bn expected by 2045. Additionally, the Selangor Aero Park (SAP) is set to become a global aerospace hub, focusing on aircraft maintenance and repair, particularly for Southeast Asia, further positioning Selangor as a key player in the region's aerospace industry.

All in all, some potential key areas of focus for sectors in Selangor would include:

• Manufacturing Sector. Selangor offers significant opportunities in advanced manufacturing, automation, and Industry 4.0 integration, alongside green manufacturing initiatives focused on clean technology and eco-friendly, energyefficient production.

• Logistics and Supply Chain. Selangor's strategic location near Port Klang offers strong logistics and supply chain opportunities, while the booming e-commerce sector presents significant investment potential in last-mile delivery, logistics technology, and fulfillment centers.

• Seaport and Maritime Sector. Pulau Carey and its surrounding areas offer potential for large-scale seaport and maritime infrastructure investments, while Selangor’s strategic location presents opportunities in shipbuilding, repair, and maritime services such as port management.

• Aerospace and Aviation. Selangor Aero Park (SAP) offers significant potential for aerospace investments in aircraft maintenance, repair, and overhaul (MRO), with ambitions to become a global aerospace hub, while also focusing on R&D for aerospace engineering, space exploration, and advanced aviation materials.

• Renewable Energy and Sustainable Projects. Selangor presents opportunities in biogas and green energy projects, aligning with Malaysia's sustainability goals, while its growing emphasis on renewable energy infrastructure makes solar power and other alternative energy sources highly attractive for investors.

• Property Development and Infrastructure. Rapid urbanization in Selangor, particularly around Klang Valley, makes residential and commercial property development lucrative, while the government's focus on smart cities creates opportunities for tech-driven solutions in smart homes, transportation, and energyefficient infrastructure.

• Technology and Digital Economy. Selangor's dynamic tech ecosystem presents investment opportunities in AI, fintech, blockchain, and digital infrastructure, while the growing demand for digitalization makes data centers and cloud services crucial, particularly for serving Southeast Asia.

• Healthcare and Biotechnology. The growing demand for healthcare services in Selangor offers investment opportunities in medical technology, hospital infrastructure, and pharmaceutical R&D, while biotechnology presents prospects in biopharmaceuticals, genetic research, and biotech-based healthcare solutions.

• Tourism and Hospitality. Selangor’s cultural diversity and natural beauty provide investment opportunities in cultural and eco-tourism, including resorts and theme parks, while the growth in medical tourism presents prospects for developing health tourism facilities to attract international travelers.

Automotive Sector

Driving Growth Through Electric Vehicles and Advanced Technologies

Selangor has established itself as a crucial hub in Malaysia’s automotive industry, accounting for 55% of the nation's automotive suppliers. Between 2014 and 2019, the sector attracted RM15.5bn in investments and RM15.4bn in exports, contributing RM40bn, or 4% of national GDP, and supporting nearly 700,000 jobs.

Moving forward, Selangor is positioning itself to capitalize on the increasing demand for Electric Vehicles (EVs), which require numerous components, including IC chip designs. The development of EV supply-chain in the state augurs well to support advancements in other related advanced technologies such as artificial intelligence (AI), video surveillance, and edge computing.

Attracting Chinese Car Manufacturers to Establish RHD Hub

Selangor aims to leverage its strategic advantage by attracting Chinese car manufacturers, who currently focus on left-hand drive designs, to conduct R&D on right-hand drive (RHD) systems. Given that approximately one-third of the global automotive market operates on right-hand drive, and considering China's predominance in left-hand drive designs, this initiative presents a unique opportunity for Selangor. The region’s favorable road conditions, weather, and robust infrastructure enhance its appeal as an optimal location for R&D in right-hand drive vehicles. Recently, Chery established a factory in Shah Alam, offering more than 1,000 job opportunities, further solidifying the state’s role in the automotive sector. Additionally, Selangor plans to provide incentives through concessionary quit rent and water rates to retain existing investors, facilitate the adoption of EV and Energy Efficient Vehicles (EEV), and promote cross-fertilization programs between the private sector and educational institutions to build a skilled talent pool, positioning the state as a key player in the global automotive landscape.

Selangor’s Push for 1,000 Charging Stations by 2024

In alignment with Malaysia's Low Carbon Mobility Blueprint (LCMB) 2021-2030, which aims to install 10,000 EV charging stations by 2025, Selangor, as quoted by YB Ng Sze Han, has set a target to establish at least 1,000 stations by 2024. This goal appears achievable, as the state, as of June 2024, operates 878 EV charging bays, consisting of 701 AC and 177 DC chargers. However, the EV charging station market in Malaysia faces profitability challenges, with return on investment (ROI) concerns deterring many companies. The cost of setting up a single EV charging station ranges from RM300k to RM1mn, depending on location and the complexity of the installation process, particularly when drilling or additional infrastructure is required. Only large, capital-intensive players like Gentari and Petronas are positioned to make sustainable investments, given the significant upfront costs. Despite these challenges, infrastructure development has progressed, with most rest areas along the PLUS highway now equipped with DC fast-charging stations, further strengthening Selangor’s capacity to support growing EV adoption.

Overweight on the Sector

We maintain our positive outlook on these sectors, as the support for EV will benefit many automotive manufacturers and assembly plants in Selangor, particularly in North Selangor, including Bukit Beruntung, Rawang, Batang Kali, Serendah, and Batang Berjuntai. This region is emerging as a major automotive manufacturing hub due to the presence of various private sector players. Notable companies in this area include DRB-HICOM, Sime Darby Berhad, Peugeot, Yamaha, and Honda, all of which contribute to the development of the automotive hub in the region. Hence, we maintain our BUY recommendation on Bauto (TP: RM2.80), SIME Darby (TP: RM3.00) and HOLD recommendation for MBMR (TP:RM5.50).

Construction Sector

RS-1 Supporting Selangor’s Ongoing Leadership in Construction

The primary economic benefits of RS-1 are rooted in construction investments, with Selangor allocating 29.8% or RM357.1mn of its total RM1.2bn Development Expenditure (DE) for infrastructure projects. Selangor continues to be a powerhouse in Malaysia's construction sector, recording the highest value of work (VOW) done in 2Q2024 at RM17mn (Refer Chart 1), representing 22.4% of Malaysia's total VOW. Hence, we believe RS-1 initiatives will further solidify Selangor’s position as a key contributor. Meanwhile, key infrastructure and industrial projects within the Geographical Development zones (SABDA, IDRISS, ZPE SMG, and the Kuala Selangor and Hulu Selangor Development Zone) are currently in the design and approval stages, with completions expected beyond the RS-1 timeframe.

Linking Regions, Driving Construction Opportunities

Selangor currently hosted few large-scale public infrastructure projects namely the LRT3 (Bandar Utama to Johan Setia), ECRL (Gombak to Port Klang), and the upcoming MRT3. We anticipate an increase in VOW in 2025, spurred by ongoing progress in the Geographical Development zones and the launch of shovel-ready projects. Notably, the construction of the re-stated LRT3 stations (Tropicana, Temasya, Raja Muda, Bukit Raja, and Bandar Botanik) is set to commence by 3Q2025. Under our coverage, we reaffirm that SunCon (HOLD, RM3.90) and AQRS (BUY, RM0.49) are well-positioned to participate in these projects due to their existing involvement in the LRT3 line. Notably, the redevelopment of Kompleks Sukan Shah Alam (KSSA), spearheaded by MRCB (non-rated), is expected to not only improve traffic flow along the Shah Alam Stadium station, but also serve as a critical flood mitigation measure for the Section 13 area.

Meanwhile, Selangor government has acknowledged that its northern region requires a comprehensive rail network to foster growth in the region. We concur that establishing a robust public transportation system is vital to fulfill the RS-1's vision of low-carbon cities and promoting a shift from private vehicle use to public transit. The proposed Selangor Rail Line aims to develop areas namely Kapar, Jeram, Kuala Selangor, Sekinchan and Sabak Bernam, supporting balanced urban and rural growth. The project will also complement the ECRL, creating seamless connections between Selangor and the East Coast of Peninsular Malaysia and benefiting the bordering areas of Perak. We note that Selangor 2024 budget includes a RM3.0mn allocation for a feasibility study of the Selangor Rail Line (refer to Chart 3) which we believe will likely drive a surge in construction activities, particularly in rail infrastructure and related urban developments.

Selangor Aerospace Park and Carey Island Port to Propel Industrial Growth

Under the RS-1 initiative, we foresee the development of industrial parks around the Selangor Aerospace Park (SAP) and Carey Island port, creating potential opportunities for construction players. Notably, SAP is set to become a regional industrial hub with a focus on maintenance, repair, and overhaul (MRO) activities for the airlines. At this point, we think Kerjaya (BUY, RM2.26) may participate in bids, leveraging its joint venture with Samsung C&T, which has strong expertise in building, civil and infrastructure projects. The state's vision for Carey Island includes developing it into a mixed-use port city akin to Amsterdam and Shanghai, offering a balanced blend of commercial, industrial, and residential spaces. We expect this transformation to generate significant construction demand for various projects, offering further spillover benefits for the sector.

Expanding Data Center Footprint

Selangor is also an attractive location for data centers due to its abundant water resources, crucial for cooling and maintaining optimal conditions for server operations. With a current water reserve margin of 15.3%, Selangor is well-positioned to accommodate the increased demand from new data centers. The ongoing expansion of the Langat 2 Scheme and the Rasau Water Supply Scheme, in which Gamuda is directly involved, is expected to boost the water reserve margin to 17.7% by 2030. The planned addition of 18-20 data centers in the region presents opportunities for leading players in this segment, particularly SunCon (HOLD, TP: RM3.90) and Gamuda (BUY, TP: RM9.50). Gamuda, for instance, has successfully deployed its next-generation Industrial Building System (IBS) to expedite the delivery of data centers, completing the AIMS Cyberjaya Block 2 project that is 8 months ahead of schedule (vs the 15-month target), as well as currently developing data center in Elmina Business Park.

Maintain OVERWEIGHT

We maintain OVERWEIGHT on the construction sector, expecting substantial benefits from the RS-1 initiative, alongside ongoing private and public infrastructure projects at both state and federal levels. The combination of mega infrastructure projects, growing demand for data centers, and increased investments in manufacturing facilities is likely to drive further expansion in the construction sector. Accordingly, we reiterate our BUY call for Gamuda (TP: RM9.50), Kerjaya (TP: RM2.26), and AQRS (TP: RM0.49), while maintaining a HOLD call for SunCon (TP: RM3.90).

Consumer Sector

Higher Tourist Footprints

Under the Rancangan Selangor Pertama (RS-1 plan), Visit Selangor 2025 is one of the state government initiatives to encourage higher tourist arrivals. As of 2023, Malaysia recorded 20.1mn tourist arrivals, generating an income of RM71.3bn. The federal government has set a target of achieving 27.3mn tourist arrivals in 2024, with an anticipated income of RM102.7bn. Given that Selangor is home to two international airports, it is expected to attract a significant portion of these tourist arrivals. Notably, Subang Airport is projected to increase its operating capacity to over 5mn passengers annually. The surge in tourist activity is anticipated to positively impact various consumer (both F&B and Retailer) and services relate companies. Among the consumer stocks under our coverage, we believe Spritzer (BUY, TP: RM2.90) bottled water sales and QL Resources (HOLD, TP: RM6.70) sales from Family Mart convenience stores are likely to benefit the most from the higher tourist arrivals.

Improving Job Market and Income Levels

A key focus area for the state is enhancing social welfare by increasing household incomes, addressing poverty, and reducing unemployment across all demographic groups. The objective is to tackle all forms of poverty, whether rural or urban, and to address both absolute and relative poverty within Selangor. From a job market perspective, Selangor has a lower unemployment rate compared to the national average. Some key development projects, such as those at Carey Island, the Sabak Bernam Development Area (SABDA), and Subang Airport, are expected to create 115k, 3.6k, and 110.2k job opportunities, respectively. Additionally, improvements in public transport, exemplified by the LRT3 project expected to be completed by 2025, will facilitate greater mobility. These factors are anticipated to contribute to a stronger job market, increased income growth, and potentially attract more residents to Selangor, ultimately boosting consumer demand and purchasing power in the state.

Overweight on the Sector

We reiterate our OVERWEIGHT stance on consumer sector, supported by an anticipated increase in consumer spending resulting from several factors, including EPF Account 3 withdrawals, wage hikes for civil servants, cash handouts, and infrastructure improvements alongside higher tourist arrivals. We particularly favor the F&B segment and value-for-money retailers (i.e. MRDIY, AEON, and Padini) as the primary beneficiaries. Our top pick for the consumer sector is MRDIY (BUY, TP: RM2.49). In the staples segment, we also like FFB (BUY, TP: RM2.02) and Spritzer (BUY, TP: RM2.90).

Healthcare sector

Preparing for a Super-Aged Society by 2040

Based on Rancangan Selangor Pertama (RS-1) under Strategic Theme 2: Enhancing Social Inclusivity & Wellbeing, there are six focus areas, one of it is public health. The five key strategies under this area are:

1. Expanding healthcare services for equitable access

2. Strengthening disease prevention and early detection

3. Achieving world-class pandemic management

4. Addressing growing healthcare concerns

5. Digitalizing healthcare programs

Based on RS-1, Selangor is projected to become a "super-aged" state by 2040. The youth population in Selangor has declined from 29% (2015) to 25% (2020), while the population aged 65 and above has grown at a CAGR of 5.8% over the past six years. Additionally, Selangor consistently ranks among the lowest in the Malaysian Youth Index. To address healthcare needs, initiatives like Iltizam Selangor Sihat, a health insurance scheme for lowincome groups, offer RM500 per year for families and RM200 per year for single individuals, providing limited financial relief for private healthcare expenses. While this will have a positive impact on private hospitals, the earnings contribution is expected to be minimal. Overall, we anticipate increased collaboration between the public and private sectors driven by growing healthcare demands in Selangor.

Expanding Healthcare Capacity in Selangor to Meet Medical Tourism Demand

Based on our observation, the average bed occupancy rate in Selangor hospitals is approximately 45.6%, lower than the national average of 55.8%. Selangor ranks 10th in terms of bed occupancy. We believe that with rapid hospital expansion and an increase in available beds among private players, Selangor is well-positioned to meet the growing demand from both local and foreign patients. As a key destination for medical tourism, Selangor has emerged as one of the most preferred locations in Southeast Asia due to the world-class healthcare services offered by its hospitals. Earlier this year, MHTC (Malaysian Healthcare Travel Council) hosted a meeting with Tourism Selangor to explore synergies between healthcare and tourism. The aim of the meeting is to further positioning the state as a hub for high-quality medical services and holistic travel experiences. MHTC, under the Ministry of Health, aims to enhance medical tourism across Malaysia, including Selangor, where 46 hospitals are currently recognized by the agency.

In Budget 2025, we expect more initiatives to support the development of medical tourism, particularly with Visit Malaysia Year 2026 approaching. In Budget 2023, RM20mn was allocated to medical tourism, but Budget 2024 shifted the focus to a broader RM350mn allocation for general tourism promotion.

Overweight on the Sector

All in all, we maintain an OVERWEIGHT rating on the healthcare sector, driven by rising demand for elective surgeries, sector growth, digitalization, health tourism, and an aging population. We also maintain a strong BUY outlook on IHH (BUY, TP: RM7.88), anticipating robust performance from increased hospital activities and organic growth. As for KPJ (HOLD, TP: RM1.88) we expect KPJ to sustain strong earnings growth driven by rising demand for high-quality healthcare services. However, we believe the potential for further upside is limited, as the market has already priced in these expectations, with KPJ’s share price rising 65.0% YoY.

Property Sector

Rancangan Selangor Pertama (RS-1) – Affordable Housing

As Selangor becomes a more urbanised state, housing affordability will be an increasingly pertinent issue to resolve in order to achieve the state’s vision for social inclusivity. As seen in other countries, when cities and states become more urbanised, houses become more unaffordable as measured by the increasing median multiple standards. Under this focus area, there are two strategies will be implemented through 1) exploring new models for affordable housing, and 2) expansion of home rental and repair program. These strategies aim to increase rates of home ownership, improve family wellbeing, and reduce cost of living.

According to RS-1, affordable housing in Selangor faces three main issues, 1) a mismatch between supply and demand for the size and type of house, 2) location of affordable housing units, and 3) the difficulty in obtaining financing for lower income households, especially for those without steady income. The mismatch between supply and demand for the size and type of affordable housing units is caused by applicant’s preference for larger, non-strata units. A survey conducted for Rumah Selangorku owners indicated that they preferred properties which were 1,000 to 1,500 square feet and non-strata properties, due to the additional maintenance associated with strata properties. The majority of the units offered under affordable housing programs by the state are strata units below 1,000 square feet in size. The non-strategic locations of some affordable housing projects have left them unsold. This issue was previously highlighted in the National Housing Policy 2018-2025. Lastly, many low-income applicants who successfully qualify for affordable homes in Selangor are unable to secure financing to purchase their homes due to non-steady income.

The state government has pledged to ensure that each district in Selangor is equipped with a sufficient supply of affordable housing. To facilitate this, the state government is offering subsidies to developers, employing various strategies to cap the maximum price of affordable homes at RM250,000. This policy is supported by private sector, including Lagenda Properties Berhad. Lagenda is currently developing the Lagenda Ardea project in Bernam Jaya, Selangor, under the Rumah Selangorku initiative. This development features 2,340 single-story terrace houses, set to be constructed in three phases. Each unit offers a land area of 20’x65’ and a built-up area of 20’x45’.

The Project, Program, and initiatives (PPI) under affordable housing focus area are focused on exploring new models for affordable housing and expansion of home rental and repair programs. Apart from the Rumah Selangorku initiative that focuses on increasing supply of affordable housing for purchase and rental (rent-to-own program), there are also initiatives to repair and upgrade existing homes that are in dire need of repairs to make it more livable. This focus area also includes an initiative to repair or build new housing units for the Orang Asli community.

Aligned with Federal Affordable Housing Initiative

We believe with the federal government initiative for affordable housing such as The Housing Credit Guarantee Scheme will increase first-time homeownership rates and continue to stimulate growth in the affordable residential property sector in the 2H24. Additionally, we expect 1) the introduction of 100% stamp duty waiver on transfer instruments and loan agreements for properties priced at RM500,000 or below, effective until the end of 2025, and 2) salary hike for civil servants, effective Dec 1, 2024, are expected to stimulate economic activity and boost the property market in the 2H24 to FY25. It is worth noting that ongoing infrastructure projects, such as the resumption of LRT3 station construction, and the shift of investment into data centers, are expected to spur mixed-use developments, increase property values, and boost demand for residential real estate.

Maintain Overweight on the Property Sector

We expect the property market to stay resilient in the second half of FY24, supported by affordable housing incentives, increased disposable income, and ongoing infrastructure projects. We favor developers with a strong sales history, reputable brands, substantial land holdings in desirable locations, and minimal holding costs, such as Mah Sing, Lagenda, and Simeprop. We maintain a BUY call on Mah Sing (TP: RM2.07), Lagenda (TP: RM1.48), and Simeprop (TP: RM1.73), whilst a HOLD call for Matrix (TP: RM1.99).

Technology Sector

Building a Comprehensive Semiconductor Ecosystem

Integrated Circuit (IC) Design Park in Selangor, the Largest in Southeast Asia

While Malaysia has excelled in the semiconductor industry for over 5 decades, its focus has largely been on the back-end process, particularly the Outsourced Semiconductor Assembly and Testing (OSAT) and Electronic Manufacturing Services (EMS). However, the front-end process, especially IC design, remains underdeveloped. To bridge this gap, Selangor is taking the lead by fostering the growth of IC design companies, demonstrated by the launch of Malaysia’s first Semiconductor IC Design Park on 6th August 2024. Strategically located at the Puchong Financial Corporate Centre (PFCC), the 45,000 sqft facility, with potential expansion to 60,000 sqft, stands as the largest IC design park in the Southeast Asia. The IC Design Park will be equipped with common public service tools and facilities, including affordable Electronic Design Automation (EDA) tools, servers, Intellectual Property (IP), Multi-Project Wafer (MPW) services, and training programs.

Even before its official launch, the IC Design Park managed to secure commitments from 6 companies; both local and international, including firms from Taiwan, China, the United States, and France (Figure 1). It is set to create 300 high-skilled jobs for IC design engineers, with starting salaries of RM5,000 and above. Additionally, Selangor plans to open IC Design Park 2.0 in Cyberjaya by 1Q25, as the IC Design Park in Puchong is already at full capacity. These further cements Selangor’s role as a hub for IC design excellence. These parks are pivotal to Selangor’s strategy to attract global semiconductor players and nurture local talent, enabling the state to meet the rising demand for advanced components driven by artificial intelligence (AI), smartphones, and data centers. Selangor's focus on IC design will empower it to cater to growing sectors such as automotive, electric vehicles (EVs), robotics, AI, and medical devices.

Aligning with the National Semiconductor Strategy (NSS)

To ensure long-term success, Selangor is actively collaborating with universities and industry players to address the skills mismatch between the semiconductor market's growing demands and the current talent pool. The state is developing upskilling programs and specialized 3-month training courses aimed at producing a new generation of engineers skilled in IC design and other related fields. The ultimate ambition goes beyond developing a strong semiconductor ecosystem — it seeks to transform Malaysia from a "Made in Malaysia" to a "Made by Malaysia" nation, ensuring that local talent plays a leading role in the innovation process. This initiative also aligns with the National Semiconductor Strategy (NSS), which aims to establish 10 Malaysian companies specializing in design and advanced packaging, with revenues ranging from RM1bn to RM4.7bn, as well as to train and upskill 60,000 highly skilled Malaysian engineers.

Complementing Penang’s OSATs

Selangor and Penang are expected to work in tandem in building a more comprehensive semiconductor ecosystem, with each state focusing on different, yet complementary, aspects of the industry. Penang, known as the “Silicon Valley of the East,” has long been a leader in the back-end process of semiconductor sector, particularly OSAT. This established strength makes Penang a critical player in global semiconductor manufacturing, with its highly developed infrastructure for assembly, testing, and packaging.

Selangor, on the other hand, is now focusing on the front-end process of the semiconductor supply chain, specifically in IC design, which is key to the development of advanced chips and technologies. By building a robust IC design ecosystem, Selangor is complementing Penang’s OSAT capabilities, allowing Malaysia to offer a full spectrum of semiconductor services — from design to final product assembly. This synergy helps Malaysia position itself as a global semiconductor powerhouse, capable of attracting highvalue investments and driving technological innovation across industries.

Overweight on the Sector

We maintain our positive outlook on the sector, as semiconductor-related companies are expected to benefit from the creation of a seamless and integrated semiconductor ecosystem in Malaysia. The development of local IC design capabilities will give OSAT companies access to advanced, domestically produced chip designs, allowing for a closer collaboration between design and manufacturing. This will streamline production processes, shorten lead times, and drive innovation, enabling the manufacturers to offer more comprehensive solutions to global clients. Hence, we maintain our BUY recommendation for Inari (TP: RM4.45) and DNeX (TP: RM0.52).

Transportation Sector

Selangor’s Vision for Enhancing Logistics and Port Infrastructure

Malaysia has been a key logistics hub in Southeast Asia, focusing primarily on container transshipment and oil and gas exports. However, the sector is currently facing some capacity limitations, especially at major ports like Port Klang. To address these challenges, Selangor is spearheading efforts to upgrade port infrastructure, with plans to increase Port Klang’s capacity by 50%, reaching 30mn TEU by 2040. Strategically located in the central region, Selangor handles one-third of Malaysia's international trade and controls half of the country’s port ecosystem. Despite ongoing issues like congestion and operational inefficiencies, Selangor’s commitment to expanding capacity and adopting advanced technologies, positions it for sustained growth. Port Klang plays a crucial role in supporting Malaysia's logistics sector, with its expansion plans align with national objectives, including the Shared Prosperity Vision 2030. These initiatives will be instrumental in maintaining Malaysia’s competitive standing, meeting rising demand from key industries such as ecommerce, manufacturing, and oil and gas, while unlocking opportunities in automation, digitalization, and supply chain enhancement.

Carey Island Port to Emerge as Malaysia's Third-Largest Port

Currently, Port Klang is the 11th largest container port in the world and is expected to become the 10th largest next year, with a target of handling more than 14mn TEUs p.a. To enhance its position in the global logistics landscape, Selangor is focusing on developing Carey Island Port alongside the expansion of Port Klang, which is expected to positively impact both Malaysia's and Selangor's economies.

The initiative to develop Carey Island Port began after the Port Klang Authority (PKA) projected in early 2017 that existing ports in the Port Klang area would reach maximum capacity by 2025. Carey Island Port is projected to become Malaysia's third-largest port by 2060, after Port Klang and Tanjung Pelepas in Johor, with development progressing through various stages starting from 2025. The master plan includes comprehensive infrastructure and connectivity upgrades such as utilities, 5G, and other essential amenities, aiming to establish Carey Island as a major port city akin to Amsterdam or Shanghai. The development will span 20-30 years, focusing on creating a conducive living environment that integrates commercial, industrial, and recreational spaces, ultimately transforming Selangor into a key global logistics and transshipment hub.

We believe that the development of a new port at Pulau Carey will benefit the long-term growth for logistics players like Swift, due to the expected increase in container haulage and land transportation volumes. As for the port, it will foster healthy competition among port operators in Port Klang. Additionally, it is unlikely to pose a near term threat to companies under our coverage, like Westports, at least for the next five years, due to the lengthy gestation period required to set up and develop a port. Moreover, Westports holds a strategic advantage due to its established relationships with global transshipment customers.

Neutral on the Sector

We maintain a cautiously optimistic outlook for the transportation sector, supported by robust domestic growth, with exports expected to rise by 6.2% and imports by 5.8% in 2024. The extensive developments at Carey Island and Port Klang are set to enhance Malaysia's status as a key global logistics hub, significantly increasing port capacity and driving longterm economic growth through 2060. However, we remain cautious about the near-term outlook due to uncertain external factors, such as global economic conditions, trade policies, and geopolitical tensions, which could impact global trade growth. Hence, we maintain a NEUTRAL recommendation on the sector, with a BUY call on PTrans (TP: RM0.96), and a HOLD call for Westports (TP: RM4.60) and Swift (TP: RM0.53).

Utilities Sector

Promoting Sustainability for Greener Future

As Malaysia has sets ambitious targets to achieve net-zero emission target by 2050, Selangor aims to reduce Greenhouse Gas (GHG) emission intensity of GDP by 35% and to reach 15% waste recycling rate by 2025. It also aims for 24 hours availability of clean water. One of the RS-1 frameworks (2021-2025) are advancing sustainability which focus on five (5) areas: i) resilience and disaster management, ii) water management, iii) low carbon state, iv) waste management and v) biodiversity and natural resources.

Infrastructure Upgrade for Climate Resilience and Water Security

The state is progressing on new flood mitigation infrastructure and upgrading existing infrastructure. Most of the infrastructural works are still ongoing, particularly in Shah Alam and Klang. For 2024, about RM68mn were allocated for the flood mitigation infrastructure works. It is commendable for the state to spend significant investment for disaster management as it will narrow the economic losses from closure and interrupted business from the bad impact during heavy rainfall season.

A good water quality, availability, and security is crucial to reduce incidents of unscheduled water disruptions resulting from raw water pollution. Noted that Selangor was among the first states in Malaysia to introduce legislation to impose fees to pollutants through the proposed gazettement of the Discharge of Return Water, and Entry or Discharge of Waste and Pollutants (State of Selangor) Licensing Regulations 2024. Recently, the Selangor Water Management Authority (SWMA) introduce zero-discharge policy (ZDP) where industry player needs to pay fee at proposed rates between RM0.10/m3 and RM0.20/m3, depending on the volume of effluent discharged. Moreover, river cleaning and rehabilitation were also implemented in Sungai Klang basin to achieve Class 2 of the Water Quality Index (currently at Class 3), as defined by Department of Environment of Malaysia. Concurrently, the infrastructure also works to increase the carrying capacity of the Sungai Klang to prevent flooding.

The state also showcases effort to increase water reserve margin to 15.6% by 2025 (vs 13.8% in Oct 2023) to enhance the water security. This is achievable thanks to its Rasau Water Supply Scheme which is expected to achieve commercial operation date (COD) in 3Q2025 and other ongoing project such as Langat 2 Phase 1 WTP’s distribution of water supply. The state also started to review the Integrated River Basin Management Plan (IRBM) Sungai Langat and Sungai Selangor (2022- 2030) as one of the steps for its climate resilience.

Taking Part in the Country’s RE Share Mix

In view to increase the renewable share in the energy generation mix and encouraging low emission mobility, the state established the baseline Greenhouse Gas (GHG) emissions with the local authorities such as expansion of walkways, cycling lanes and EV charging stations (2025 target:1,000 unit and 2030: 4,000 unit). Apart from that, among ongoing project under low carbon states are the 1.2GW Combined Cycle Gas Turbine (CCGT) Pulau Indah Power Plant (PIPP) with targeted COD by 4Q2024, the digital GHG inventory platform adoption at the State-level and local authorities as well as Demand Responsive Transit (DRT) under Selangor Mobility Programme. All in all, these steps are inline with its aim to achieve Net Zero Cities Selangor by 2050.

Finally, the State is in intense effort to improve its waste management through the development of Waste-to-Energy (WTE) plants. Currently, Selangor is on track to achieve commercial operations for 2 out of 3 WTE plants in development by Worldwide Holdings who is wholly owned by the state government. Another WTE plant will be known as Sultan Idris Shah Green Energy Plant (SISGEP) and to be developed by KDEB Waste Management (KDEBWM) for a generation of 58MW of electricity from 2,400 tonnes of solid waste daily. Notably, the daily solid waste generation in Selangor currently stands at about 7,700 tonnes per day.

Overweight on the Sector

We see neutral impact on our stock coverage as the state’s WTE plant development will be championed by the state-owned companies. Nonetheless, we maintain our positive outlook on the sector. We have a BUY call on Tenaga (TP:RM17.84), Malakoff (RM0.90) and Cypark (BUY, TP:RM0.96).

ESG – (RS-1 Navigating Sustainability)

Strengthening Climate Action and Resource Efficiency

Selangor is driving its environmental performance by focusing on decarbonization and resource efficiency to meet global climate goals. Key to this effort is the commitment to contribute 1.5GW towards Malaysia’s renewable energy target of 13.0GW by 2025. To support this transition, Selangor is rapidly expanding its EV infrastructure, with target of 1000 EV charger installation which represent 10% of the national EV charging network, aiming to cut transportation-related emissions. Notably, less than 3,000 EV chargers installed nationwide to date mainly due to ongoing concerns on the cost, safety, and liability of adding more chargers and dedicated EV bays. However, we saw that Selangor has accelerated its efforts after falling short from the 2023 target and deem to meet its extended target in 2024.

Nevertheless, parallel to meeting the climate goal, we do note that Selangor is advancing the development of a carbon market ecosystem through the Selangor Carbon Programme, which focuses on generating high-quality carbon credits through nature-based solutions such as mangrove restoration. The state is also establishing a comprehensive greenhouse gas (GHG) inventory system for local authorities, in line with the Global Protocol for Community-Scale Greenhouse Gas Emission Inventories (GPC) standards. Collaborations with the Malaysian Green Technology and Climate Change Centre (MGTC), Majlis Perbandaran Sepang (MPSp) and Majlis Perbandaran Selayang (MPS) are underway to support low-carbon studies and the GHG inventory system.

Air quality management also a priority in its RS-1 framework, with Selangor transitioning to monitoring PM2.5 concentration levels to meet national air quality standards. The state is also enhancing disaster resilience by improving coordination among agencies such as Skuad Pantas, NADMA, and the Selangor State Disaster Management Unit (UPBN) to ensure effective disaster preparedness and response. In resource efficiency, Selangor is targeting an increase in water reserve margins from 13.8% in 2023 to 15.6% by 2025, supported by investments in the Rasau Water Supply Scheme and flood mitigation projects. Waste management initiatives aim to boost the recycling rate from 8.24% in 2023 to 15% by 2025, through projects like the Sultan Idris Shah Green Energy Plant, the Selangor Recycle Surge and waste-to-energy (WTE) facilities. Additionally, the state has also taken step in biodiversity efforts including planting one million trees by 2024 through projects such as the Selangor Royal Heritage Forest and Central Forest Spine Selangor.

Advancing Equity and Enhancing Community Well-being

Selangor actively prioritizes social inclusion and community well-being in its sustainability agenda. According to DOSM, the state experienced a slight decrease in absolute poverty from 1.7% in 2020 to 1.5% in 2022, indicating a need for more targeted interventions. Nevertheless, the state is committed to reducing the absolute poverty rate to 0.5% by 2025, aligning with the Ekonomi MADANI vision. Notably, the Iltizam Selangor Penyayang Program, a key initiative under RS-1, has launched 46 initiatives across healthcare, transportation, entrepreneurship, and childcare to assist the vulnerable groups. Moreover, the state's median household income has risen from RM7,300 in 2020 to RM9,983 in 2022, reflecting progress in improving economic conditions. Additionally, through Public-PrivateCivil Partnerships (PPCP), its Program Sinergi Prihatin, which fosters collaboration between the government, welfare associations and NGOs had secured RM450,000 in 2023 and is set to receive RM150,000 in 2024 for social welfare projects. This program demonstrated Selangor's dedication to building an inclusive and participatory society.

According to the Department of Statistics Malaysia (DOSM), 20 districts in Malaysia now have the highest concentration of residents over 60, including Kuala Langat, Kuala Selangor and Sepang this year. In response to this demographic shift, urban areas like Petaling Jaya are taking proactive steps to prepare for an aging population. The Petaling Jaya City Council

(MBPJ) is spearheading its Senior Citizens Action Plan 2030, which focuses on five key areas; health, economy, social and security, education, and environment, to help senior citizens age healthily, stay active and live fulfilling lives in a supportive environment. To further enhance the well-being of older residents, there is an opportunity to expand beyond traditional healthcare services and focus on financial security and overall quality of life. Selangor can seize this moment by accelerating the development of its Selangor Silver Workforce Employment Programme, designed to create job opportunities for senior citizens. With the program currently in the planning stage and set for finalization by 4Q2024, followed by a pilot launch in 2025, Selangor could benefit from fast-tracking this initiative. By fostering public-private partnerships and investing in community engagement, Selangor could set a benchmark for inclusive economic development, ensuring that senior citizens are recognized as valuable contributors to the state's growth and vibrancy.

Healthcare and education remain key focus areas under the RS-1 framework, with Selangor actively promoting affordable private healthcare, encouraging regular health screenings, and fostering healthier lifestyles. The state is also driving educational equity by providing financial aid, organizing tuition classes, and developing Technical and Vocational Education and Training (TVET) modules to boost employability and reduce educational disparities. We do note that these initiatives aim to uplift families from poverty through education and lifelong learning. However, making the objectives more sustainable, it is crucial for Selangor to establish a strong foundation that aligns with the needs of advancing industries, ensuring that the workforce is equipped with the high-value skills required for future growth.

Enhancing Transparency, Accountability and Risk Management

Selangor also actively enhancing its governance structures to effectively implement sustainability objectives. The launch of the Selangor Government Data Exchange (SelGDX) platform in 2023, which integrates data across state agencies, improving service delivery and reducing infrastructure costs. Earlier this year, SelGDX had successfully integrated 12 of the 30 targeted Application Programming Interface (APIs), reflecting substantial progress towards efficient governance. Additionally, the Selangor Implementation and Performance Monitoring Unit (SIAP) plays a crucial role in ensuring accountability and transparency for RS-1 initiatives. With 49% of RS-1 game changers on track as of 2023, SIAP actively monitors progress and addresses any implementation gaps.

To further enhance its governance framework, the state established a Core Risk Management Committee (RMC) to address macro risks beyond natural disasters. The RMC will focus on risk planning, analysis, and collaboration to ensure effective policy preparedness and risk mitigation. Currently in the concept and initiation stage, the RMC is expected to become operational by 2024, providing a robust mechanism for strategic risk management and alignment.

Striking a Balance

Notably, under RS-1, Selangor is making notable progress with its Sustainability Theme strategies as most Priority Program Initiatives (PPIs) are advancing through the implementation phases (20% completed vs 80% ongoing). While some initiatives are still in the early stages, we believe the state remains on course to achieve its goals by the end of the RS-1 delivery period. However, it is essential for Selangor to address the challenge of balancing rapid economic growth with effective environmental protection amidst pressures from development and enforcement constraints.

Meanwhile in Strategic Theme 2, 12% out of 98 PPIs completed as the theme aiming to enhance social inclusivity and well-being. The state is actively working to provide equitable income opportunities and tackle poverty in both urban and rural regions. Although Selangor has introduced a range of social programs, their success largely depends on

effective budget allocation. By focusing on high-impact initiatives and optimizing resource use, Selangor can improve its social outcomes and better address significant challenges.

In summary, Selangor’s proactive stance on sustainability, which integrates environmental and social objectives, underscores its commitment to long-term, holistic development. The state's ongoing efforts reflect a forward-looking strategy that aligns with global sustainability goals while effectively addressing local needs and overcoming challenges.

Source: BIMB Securities Research - 9 Sept 2024