SEZ set to catalyse equity valuations - MIDA | Malaysian Investment Development Authority
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SEZ set to catalyse equity valuations

SEZ set to catalyse equity valuations

18 Apr 2024

The Johor-Singapore Special Economic Zone (SEZ) is set to catalyse equity valuations in both Malaysia and Singapore under five themes.

These themes, as identified by Maybank Investment Bank (Maybank IB) Research, are optimising hinterland access; stimulating north-south supply chain shifts; fast-tracking the net-zero transition; expanding infrastructure and property investments; and broadening the small and medium enterprise or SME economy.

Among the sectors that could benefit are banking; property and real estate investment trusts (REITs); industrials; renewables; technology; and telecommunications, according to the brokerage.

“While details are limited, early official statements point to SEZ initiatives focused on better cross-border integration, foreign direct investment facilitation, talent development and entrenching renewables,” Maybank IB Research said in its report yesterday.

Maybank IB Research pointed out that the SEZ could create a regionally differentiated value proposition by its combination of capital access, infrastructure and policy stability.

It noted multiple sectors across Malaysia and Singapore would stand to benefit from the SEZ initiatives.

“Banks are key given already entrenched cross-border positioning, enabling share gain from higher wholesale and retail credit demand and fees from trade.

“Increased infrastructure investments as well as housing and commercial facilities demand could be a boon to Singapore and Malaysia property developers and REITs,” it explained.

“Data centre establishment should be positive for Singapore and Malaysia telecommunications as well as Singapore and Malaysia electronics manufacturing players.

“Increased renewable capacity should spur Singapore industrials and Malaysia renewables,” it said, adding easier travel could ease labour pressures and widen the mass market for Singapore gaming.

Maybank IB Research said its SEZ dozen top picks are those that could potentially see earnings and multiple upgrades from their medium-term gearing to the five investment themes.

Of the brokerage’s SEZ dozen picks, the six that were listed on Bursa Malayia were Axis-REIT, CIMB Group Holdings Bhd, ITMax System Bhd, Solarvest Holdings Bhd, S P Setia Bhd and Telekom Malaysia Bhd.

The remainder were Singapore-listed companies, namely, Frasers Capital Trust, Frencken Group Ltd, Genting Singapore Ltd, OCBC Bank Ltd, Sembcorp Industries Ltd and Singapore Telecommunications Ltd.

The economies of Singapore and Malaysia are already closely integrated, Maybank IB Research said, noting Singapore accounted for nearly 25% of Malaysia’s foreign direct investment (FDI), and it is Malaysia’s second largest trading partner.

“Globally, SEZ’s success is determined by right locations, smooth logistics and strong policy frameworks. Historically, entrenched ties between Johor Baru and Singapore already augment the locational advantage,” it said.

“Now a robust policy framework needs to be established that backs easier movement of capital and people.

“This should bolster Singapore’s role as a financial centre and logistics hub. Concurrently, Johor Baru could unlock substantial value from its access to land, labour and energy,” it added.

The SEZ could make it easier and more attractive for Singapore companies, multinationals and SMEs to invest in Johor, and it can also complement and sharpen Singapore’s FDI competitiveness.

Similarly, investors will have access to Singapore’s world-class financial centre and logistics infrastructure, as well as Johor’s more affordable labour pool, abundant land and cheaper energy resources, Maybank IB Research said.

Source: The Star