The Johor-Singapore Special Economic Zone (JS-SEZ) is likely to benefit several sectors from both sides of the Causeway, say analysts. As touted by the governments, the JS-SEZ zone offers a “wide range of opportunities”, such as competitive costs of doing business, strong government support and pro-business policies and incentives.
The joint agreement was officially signed by the prime ministers from both countries, Lawrence Wong and Anwar Ibrahim, on Jan 8.
In Singapore, Maybank Securities analyst Thilan Wickramasinghe believes that the banking sector, gaming stocks, industrials, tech counters and telecommunication companies (telcos) are winners from the formation of the SEZ.
The banks should be able to take part “across multiple verticals”, especially as supply chains shift to the SEZ, Wickramasinghe reasons in his Jan 7 report.
Telcos should also be able to benefit from Johor’s position as a data centre hub as well as higher demand from cross-border connectivity infrastructure.
Industrials should benefit from the demand for green energy and stronger cooperation for renewable energy between both countries, while the tech manufacturing sector should be able to leverage the supportive tax incentives and access to competitive land and labour.
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In the same vein, property developers and REITs could also have more opportunities to take part in developments in Johor, although they may see business leakages to Malaysia in the near term, the analyst adds.
Finally, easier border crossings to Singapore could support mass market gaming demand — a nod to Genting Singapore , which runs Resorts World Sentosa, says analyst Samuel Yin. “The mass market is especially important as it yields much higher ebitda margins of 40%–50% [compared to the] VIP market [at] 10%– 20%),” he writes.
“Separately, post-Covid, we estimate that the average salary per employee at both integrated resorts (IRs) has risen by 20%–30% compared to pre-Covid times as labour has been harder to come by. Lower border friction may somewhat ease labour pressure.”
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Of the three banks, Wickramasinghe prefers Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) as they already have well-established footprints in Malaysia and Asean.
Among the REITs, analyst Krishna Guha likes CapitaLand Integrated Commercial Trust (CICT) and Mapletree Logistics Trust (MLT). CICT’s portfolio of CBD offices and well-located prime and suburban malls should be able to benefit from increased demand for business set-ups, while MLT’s assets that are located near existing and upcoming ports in Singapore should benefit from higher economic growth and more trade throughput in the region.
Within the tech sector, analyst Jarick Seet has identified AEM Holdings , Frencken Group , UMS Integration and Venture Corp as his top picks given their existing manufacturing facilities in Malaysia and their potential to add capacity to their operations.
Eric Ong likes Thomson Medical Group among the healthcare counters due to its exposure to the Thomson Iskandar Medical Hub.
Meanwhile, Guha believes Sembcorp Industries should benefit from the renewable energy co-operation and growing Asean grid connectivity between both countries. “Revenue opportunities are likely in clean energy generation, distribution and power trading. Risks stem from policy back tracking and execution pitfalls,” he says.
Finally, Hussaini Saifee likes Singapore Telecommunications (Singtel) among the telco and data centre picks as the counter is already partnering with Malaysian telco TM to build a 200MW AI-ready data centre in Johor.
Prior to the signing in January, DBS Group Research analysts Ho Pei Hwa, Geraldine Wong, Dale Lai, Jason Sum, Elizabelle Pang, Amanda Tan, Tabitha Foo and Chee Zheng Feng believe counters from renewables and energy, data centres, logistics and technology will benefit from the SEZ in the near term.
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These include stocks such as Sembcorp, Seatrium, Mapletree Industrial Trust (MINT), MLT, CapitaLand Ascendas REIT (CLAR), Venture and Grand Venture Technologies.
In their report dated Nov 29, 2024, the analysts believe renewables counters will be able to tap on Malaysia’s renewable market, which is backed by data centre demand and firm project internal rate of returns. The joint development in Pengerang could also have a win-win outcome as it attracts foreign direct investments across the straits of Jurong Island. At the same time, it could allow Singapore to tap into land in Malaysia for renewable, development of carbon capture solutions as well as other clean energy value chains such as hydrogen.
Logistics stocks will benefit from the increased movement of goods across the border whereas property names such as City Developments (CDL) and Frasers Property (FPL) could take advantage by acquiring “opportunistic sites” at attractive prices.
Finally, the DBS analysts believe stocks such as Singapore Technologies Engineering (ST Engineering) should also still benefit despite Senai’s limited potential as a maintenance repair and overhaul hub. However, the airport still holds potential for aerospace manufacturing. Plus, its proximity to Singapore’s aviation ecosystem, availability of industrial space and lower labour costs make it a potential base for tier two and three aerospace suppliers.
However, not everyone will benefit from the opening of the JS-SEZ. Unlike their peers at Maybank, the DBS analysts believe there may be potential leakage for healthcare stocks and retail REITs. While the SEZ may be neutral for IHH as it has properties on both sides of the causeway, Raffles Medical, with its lack of operations in Johor, could see risks of patient diversion to Johor. Still, any negative impact will not be substantial, the analysts say.
Retail REITs like Frasers Centrepoint Trust (FCT) may also face retail leakage, considering Johor Bahru is a popular shopping destination for Singaporeans preferring to tap on currency differentials.
“Singaporeans on average spent $141 per day on shopping in Malaysia before the pandemic. With per basket spend as a proxy, we estimate that the Johor Bahru–Singapore Rapid Transit System (RTS) Link will boost retail spending by an additional $1.8 billion in Johor Bahru, equivalent to an additional 3% retail leakage from Singapore to Johor Bahru per year,” the analysts wrote in November 2024.
Even though FCT could see impact on its malls, particularly its north-most Causeway Point Mall, the analysts still recommend investors buy FCT on any weakness, which could be caused by “sentiment-driven pressure” ahead of the RTS’s opening in 2026 or early 2027.
Macquarie analysts Jayden Vantarakis and Max Koh are similarly positive on the two banks OCBC and UOB due to their sizeable operations in both markets, although they see stock beneficiaries to be largely on the Malaysian side.
Malaysian stock beneficiaries
Beyond the banks, Vantarakis and Koh have identified Malaysian-listed Tenaga Nasional (TNB), YTL Power International (YTLP) and NationGate Holdings as beneficiaries of the nine zones identified in the SEZ. TNB and YTLP are electricity utility companies while NationGate is an electronics manufacturing services provider.
UOB Kay Hian analysts Desmond Chong, Vincent Khoo and the Malaysian research team are more upbeat on the potential of property stocks across the Causeway.
In their Jan 8 report, the analysts see positives for stocks in the Malaysian construction as well as oil and gas sectors. They are also “neutral to slightly positive” on property stocks in the immediate term due to the lack of timeline for improvements in public transportation and tax break incentives. The analysts are “neutral” on plantation stocks, although they believe companies that have strategically situated landbanks in Johor such as SD Guthrie and Genting Plantations could be able to explore avenues to monetise their land assets.
“Developers involved with RTS currently are Sunway Construction, IJM Corporation, Gadang Holdings [and] Econpile Holdings. So further rail network developments may benefit these names with established track records,” the UOB Kay Hian analysts write.
Other names floated include Yinson for green mobility, as well as property players like Eco World, SP Setia, Mah Sing, UEM Sunrise, IOI Properties and Lagenda Properties.
According to the MIDF team, sectors that will benefit from the SEZ are property, construction, utilities, oil and gas, and transport and logistics. Additional names mentioned in this report are Glomac, Gamuda, and Malayan Cement under property and construction; Samaiden, Pekat and Sunview under utilities; Malaysia Marine and Heavy Engineering (MMHE) and Petronas Chemicals under oil and gas; and Swift Haulage under transport and logistics.
Analyst Peter Kong at Kenanga Investment Bank sees logistics firms and Malaysian banks that focus on infrastructure as near-term beneficiaries.
Among the bigger names, Kong has identified YTLP, Genting Plantation, Mr DIY and Maybank. Within the smaller caps, Kong sees Swift and Solarvest as beneficiaries.
Maybank Securities’ Wong Wei Sum likes UEM Sunrise as one of the property companies to leverage the benefits of the SEZ. While he recognises that the major developer “stands a good chance of securing some of the targeted 50 projects”, much of the positives may already be priced in. As such, investors could look to monetise their expectations that have been building since July 2023.
In its Oct 2, 2024, report, RHB Bank Singapore believes data centres will be able to thrive under the SEZ. “We see data centre investments as a catalytic enabler to raise Malaysia’s economic complexity and move up the technology ladder,” wrote the RHB analysts, Jeffrey Tan, Wan Muhammad Ammar Affan and the Singapore research team.
Their preferred sectors to ride on the data centre theme are telcos, utilities, construction and property with individual names such as TM, Singtel, TNB, YTLP, Sunway Construction, Gamuda, IJM, Sime Darby Property and Mah Sing.
