• Maintain OVERWEIGHT. Key Johor picks include Sunway Construction (SCGB) and IJM Corp (IJM). We view the latest signing of the Johor-Singapore Special Economic Zone (JS-SEZ) as positive for the construction sector, as a key goal is to attract 100 projects in the first 10 years, that are on sectors like aerospace, electronics and tourism. Malaysia will establish an infrastructure support fund related to the JS-SEZ while Singapore will design funding support to facilitate Singapore companies' expansion in the JS-SEZ.
• In our view, infrastructure support which relates to contractors would cover road connectivity as the JS-SEZ is spread across nine flagship areas: Johor Bahru (JB) City Centre, Iskandar Puteri, Tanjung Pelepas-Tanjung Bin, Pasir Gudang, Senai-Skudai, Sedenak, Forest City, Pengerang Integrated Petroleum Complex and Desaru. A key contractor involved in road-related projects in Johor is Kimlun Corp (KICB MK, NR) via the upgrade of Senai-Desaru Expressway from Jambatan Sungai Johor to Sungai Semenchu.
• Priority sectors under the JS-SEZ that may benefit contractors include logistics, electrical and electronics and manufacturing - amidst the need to construct industrial buildings such as logistic hubs and factories. Data from the National Property Information Centre (NAPIC) shows that the overhang in industrial buildings has been on a downtrend (Figure 3).
• We envisage contractors such as SCGB and IJM to be at the forefront of such related industrial opportunities. SCGB has clinched MYR3.9bn worth of data centre (DC) jobs in Johor, which could put it in a strategic position to aim for other industrial buildings, namely warehouses and semiconductor manufacturing jobs. Meanwhile, IJM only has started building DCs in Iskandar Puteri and Gelang Patah in Johor but we are reassured by its presence in building semiconductor facilities in Penang and warehousing logistic hubs in Selangor, which could make IJM a good fit.
• The drive for enhanced mobility is inevitable. Although there has been no major update on whether or not a Light Rail Transit (LRT) or an Autonomous Rapid Transit System would be implemented in Johor, we do not discount the possibility of any type of public transportation system to be integrated with the Johor Bahru-Singapore Rapid Transit System Link (RTS Link), as one of the key objectives of JS-SEZ is to facilitate freer movement of people. On this front, we believe SCGB and IJM to be preferred names, premised on the involvement of both contractors in the RTS Link.
• MRT Corp's tender for the multi-storey park and ride facility and a perimeter circulation road for the RTS Link, as well as the selection of a partner to invest in and build a retail podium and mixed use development at Bukit Chagar could be an additional opportunity. We understand that IJM is looking into this tender, but do not rule out Sunway (SWB MK, BUY, TP: MYR5.75) potentially eyeing this. Recall that JB City Centre is the flagship zone under the JS-SEZ.
• A key risk includes lower-than-expected investments in the JS-SEZ.

Source: RHB Research - 8 Jan 2025