In my previous article, I mentioned that Singapore and Johor share a special symbiotic relationship, where there is no need for a special economic plan.
It seems the governments of both countries may have taken notice of this and launched a special economic zone – the Johor Singapore Special Economic Zone (JS-SEZ). (Just kidding!)
The JS-SEZ’s main objective is to strengthen cross-border economic connectivity. This would involve the flow of materials, goods, human capital, and investments between Johor and Singapore.
This megaplan also aims to attract Foreign Direct Investments (FDI). Although the JS-SEZ is still in its nascent stage – with both countries having just signed the Memorandum of Understanding – further details are to be stamped out.
That said, I think it’s a big win for both countries if this plan does take off. Even though the infrastructure will be built on Malaysian soil, it still provides Singaporean businesses with an opportunity to expand, while also tapping on what Singapore does best – attracting wealth for capital deployment.
With infrastructure being the main skeleton of the success of this economic zone, here are 5 Malaysia stocks that can benefit from the JS-SEZ.
YTL Power International Bhd (KLSE: YTLPOWR)
The JS-SEZ coincided with another timely event – a deal between local infrastructure and data center specialists YTL POWER and NVIDIA to build AI capabilities into a data center in Malaysia’s Johor state, starting from the middle of next year.
We have previously covered a deep dive into YTL POWER here. The SEZ will revolve around providing businesses with cutting-edge technology, and YTL POWER is in a prime position to lay the groundwork for these necessary infrastructures.
Compared to the current bulk of its business, which focuses on power generation and retailing under YTL PowerSeraya and Geneco, the data center vertical could enhance the profitability and prospects of the company even more.
This explains why share prices have risen meteorically after news of the collaboration and SEZ announcement broke.
To give you a peek at how operating margins can be enhanced if the data center business does blossom, below is the operating margin comparison between YTL Power and Iron Mountain (NYSE: IRM), a global leader in storage and information management services, as a reference point.
UEM Sunrise Berhad (KLSE: UEMS)
UEM Sunrise Berhad is one of Malaysia’s largest property developers. It is one of the subsidiaries of UEM Group, a state-owned enterprise.
It is easy to pick out UEM Sunrise as one of the beneficiaries due to its ties to a state-owned company. Moreover, the company has already completed and has ongoing projects in Johor and Iskandar Malaysia.
Share prices of UEMS are up by almost 300% for the past year, much faster than the speed of its post-pandemic recovery.
Sunway Bhd (KLSE: SUNWAY)
Another property developer to keep your eye on would be Sunway Berhad. Sunway boasts a solid track record not only in property development but also in developing and planning of townships.
It counts Sunway City Kuala Lumpur, Sunway City Ipoh, and Sunway City Iskandar Puteri as some of its successful township planning projects. The group also develops and manages investment properties in the retail, hospitality, leisure, and healthcare sectors.
Even though the JS-SEZ blueprint and plan may still be vague at this point, Sunway Group has the potential to develop new townships surrounding the special economic zone.
IJM Corporation Berhad (KLSE: IJM)
IJM is another conglomerate that could recognize the potential of the special economic zone.
It has a knack for getting megaprojects, which include public buildings, high-rise developments, and even highways, and water treatment plants.
Its latest achievements include the HSBC Headquarters at TRX City and TRX Residences.
As with any other construction and property development company in Malaysia, revenue has not yet return to pre-pandemic highs – there is a need for projects as catalysts.
In terms of market capitalization, it sits in between Sunway and UEMS, at MYR 7.7 billion.
Itmax System Berhad (KLSE: ITMAX)
ITMAX System Berhad, incorporated in 2001, is a Malaysian company specializing in public space networked systems and playing a key role in Malaysia’s smart city initiatives.
Their offering and services cover networked video surveillance, networked traffic management systems, networked lighting systems, and data digitalization.
They equip and provide townships and cities with smart city elements, from providing real-time street surveillance and centralized management of traffic systems and lighting.
Even though the company was only listed on the Malaysia Stock Exchange in December 2022, it has garnered some fanfare as the stock price is up by 28% since Sep’23.
Despite having a limited track record and audited financials, ITMAX shows that it has growth potential in this niche space, with improving operating margins.
Straightforward picks?
I’ll be honest, it does seem like a straightforward pick in anticipation of the special economic zone.
All 5 companies have been observed and highlighted in an Asia Nikkei article, and a Malaysian working in Singapore reviewed and commented on the picks. The infrastructure players with existing exposure in Johor with a forte in delivering are highlighted as likely beneficiaries.
However, the success of the special economic zone might not be a straightforward one. Malaysia’s geopolitical backdrop can still be very unpredictable, although the Unity government and pact seem to be still holding up well (which I am very happy about!)
Mega projects that could take more than 4 years to execute and complete may risk potential u-turns or change of mind – remember the High-Speed Rail initiatives that Singapore pocketed SGD 102.87 million as compensation?
Even if you all looking to profit from a speculative bet, it’s best not to put all your eggs into one basket.
Or in this case, all into one special economic zone!
