A Johor-Singapore SEZ, backed by clear policy and strong execution, has the potential to materially uplift economic value creation on both sides of the Causeway says Maybank IB in its special report of the potential benefits the economic zone could genererate for Malaysian companies.
In the report MIBG said integrating Singapore’s global financial and logistics capabilities with Johor Bahru’s access to competitive land, labour and renewable energy is a synergy multiplier. Regionally, this could be a competitive advantage in attracting fresh foreign direct investment (FDI) to the SEZ – especially as supply chains migrate South – while also fast- tracking Net Zero transition. Broad sector winners include banking, property & REITs, industrials, renewables, technology and telecom.
Noting on the impact, the house picks its winning SEZ Dozen which include AXRB, CIMB, FCT, FRKN, GENS, ITMAX, OCBC, SCI, SPSB, Solarvest, Singtel and Malaysia Telekom.
Going from close to closer
The economies of Singapore (SG) and Malaysia (MY) are already closely integrated. SG accounts for nearly 25% of MY’s FDI. For MY, SG is its second largest trading partner. Globally, SEZ success is determined by right locations, smooth logistics and strong policy frameworks. Historically entrenched ties between JB and SG already augments the locational advantage. Now a robust policy framework needs to be established that backs easier movement of capital and people. This should bolster SG’s role as a financial centre and logistics hub. Concurrently, JB could unlock substantial value from its access to land, labour and energy.
Five major investment themes set to drive equities
While details are limited, early official statements point to SEZ initiatives focused on better cross-border integration, FDI facilitation, talent development and entrenching renewables. We think these should catalyse equity valuations in SG and MY anchored under five themes: (a) optimizing hinterland access; (b) stimulating North – South supply chain shifts; (c)
fast-tracking Net Zero transition; (d) expanding infrastructure and property investments; and (e) broadening the SME economy. In our view, the SEZ could create a regionally differentiated value proposition by its combination of capital access, infrastructure and policy stability.
Wide-ranging sector winners
Multiple sectors stand to benefit. 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 housing and commercial facilities demand could be a boon to SG and MY property developers and REITs. Data centre establishment should be positive for SG & MY telecom as well as SG and MY electronics manufacturing players. Increased renewable capacity should spur SG industrials and MY renewables. Easier travel could ease labour pressures and widen the mass market for SG gaming.
Maybank IB says its SEZ Dozen top picks are those that can potentially see earnings and multiple upgrades from their medium-term gearing to the five investment themes.
