Johor: Transitioning Into A Supercharged Growth Phase – RHB IB

“Greater Johor Bahru should be positioned as the nation’s second metropolitan region after the Klang Valley…” Iskandar Puteri MP Liew Chin Tong said recently.

A Malaysia Thematic Report by RHB Investment Bank released today (Sept 18) believes the Government-led catalytic developments as well as influx of foreign and domestic direct investments will not only spur job flows for the construction sector, but also have a positive spillover on the property market.

Announcements on the Johor-Singapore special economic zone and updates on the proposed Kuala Lumpur-Singapore high-speed rail (HSR) will be key upcoming events.

Tier-1 developers remain confident on Iskandar Malaysia (IM)

Although the IM property market went through a challenging period in 2015-2021, major developers remain confident on the long-term outlook for the region. Just recently, both Sunway and Eco World (ECWI MK, NR) expanded their presence in IM.

While Sunway acquired the remaining 40% stake of its 1,071-acre land in Pendas, Eco World bought 404 acres of land in Kulai for industrial development. Given its landbank exposure and growing property sales, IM has been an important market for many developers.

RTS to ramp up cross-border traffic

Work progress on the Johor BahruSingapore Rapid Transit System (RTS) Link project has significantly boosted buyers’ confidence, given the visibility of growth prospects.

The RTS 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 houses in the central region of Johor is likely to grow more significantly in the coming years, while the influx of new investments is expected to lift the state’s GDP per capita over time, translating into higher affordability for housing in the long run.

Johor is bustling with construction activity.

The state’s value of construction work done on a quarterly basis reached MYR3.8bn in 2Q23 – the highest in 13 quarters, and the second largest among all the states. Concurrently, Johor saw MYR9.6bn worth of construction projects awarded as of end-Aug 2023, spread across 913 projects. In terms of the value of projects awarded YTD August, Johor is just behind Selangor (MYR16bn worth of construction projects, spread over 1,423 projects).

Contractors are well equipped to ride on Johor’s growth

With favourable labour conditions and more manageable building material price trends, contractors are in a sweet spot to leverage on Johor’s infrastructure revolution.

Notable opportunities available for contractors in Johor include the remaining packages of the RTS project, Iskandar Rapid Transit (IRT), and data centres in industrial parks. Spillover effects from the growth in IM will benefit residential property contractors.

Johor thematic stock ideas: RHB IB likes UEM Sunrise (UEMS) and Sunway in the property space. For construction, RHB prefers Sunway Construction, Kerjaya Prospek, and Malaysian Resources Corp (MRCB), with Ekovest (EKO MK, NR) as a non-rated idea. An Overweight call on the sector is maintained.

Source: Business Today